Tony Blair: The important thing was that, from 30 March onwards, the new system that was put in place meant that the cases were considered prior to release. That has now been done; the backlog is now being dealt with.
	I return to the point that I have made. On any basis, for years, we have not been deporting all those people convicted of a serious criminal offence. I say now, "Let us deport all those people", and I hope that we can get support for that right across the House. Up until now, every time we have taken these measures, they have been opposed by the Conservative party.

Tony Blair: I do not believe that the Home Secretary has created the problems of this system. I believe that those problems have existed for a very long time, in the way in which I have described. I think that it is important that we take the measures necessary to sort out the existing system. That has been done and that is why, since 30 March, the cases have been considered prior to release. But I think that there is a far bigger question, which was raised by the shadow Home Secretary earlier. The fact is that even if all the cases are considered prior to release, we do not at the moment deport all those people convicted of a serious criminal offence. The truth is that, even if we take those cases that have been considered, there are still a significant number that, having been considered under the existing system—which has, as I say, been in place for decades—do not result in deportation. Therefore, in my view, it is not just a question of the existing system; it is about making sure that that system is radically overhauled so that those who are convicted of a serious criminal offence are deported automatically. If we do not do that, we may consider all the cases in time, but we will not deport all the people who should be deported.

Menzies Campbell: Let me make it clear that when the Prime Minister produces his proposals, we will obviously consider them in detail, but in the past nine years, we have had dozens of pieces of law and order legislation—[Interruption.]

James Gray: Under the Prime Minister's new theory of ministerial responsibility, the Home Secretary is staying on to sort this shambles out. Will the Prime Minister tell us how long the Home Secretary has got to do that and whether he will be standing down afterwards?

Tony Blair: First, for the reasons I have already explained, since 30 March, for the first time in decades, cases have been considered before the release of foreign nationals from prison. I come back to the point that I made a moment or two ago. One part of dealing with this is taking measures now to legislate so that everyone who is a foreign national who serves a prison sentence is automatically deported.

Charles Clarke: With permission, Mr. Speaker, I would like to make a statement on the deportation and removal of foreign national prisoners. I will update the House on our progress in considering the cases that I reported last week had been released without proper consideration, and I will set out the facts in relation to the reports on foreign national prisoners and the removal of failed asylum seekers, which my Department received over a period of time. I will also set out the action taken by my Department in response to those reports, including the robust procedures put in place to deal with the very specific issue of consideration of deportation pre-release. Finally I will set out, as promised a week ago at this Dispatch Box, the conclusions I have come to on reforms necessary to the policy framework in which deportations are considered and dealt with.
	Let me begin by confirming, as I set out to the House last week, that as a result of a series of decisions taken earlier this year, including improved management structures, more resources and tightened procedures, we have for the past month had a system to ensure that further cases cannot be missed. That situation will continue to improve as we move over time as a matter of routine to consider for deportation all potential cases a year before they leave prison, or at the beginning of the sentence if that is less.
	Last Friday I wrote to you, Mr. Speaker, to set out our progress in dealing with those cases released without prior consideration of deportation, and I would now like to update the House on the figures that I published then. As of yesterday evening, consideration of all the most serious 79 cases had been completed, with deportation action having been commenced in respect of 70. The remaining nine are cases where deportation action is not being pursued, in accordance with current policy criteria. Of those 70, 32 are now accounted for and either deported or within our control. The immigration service and police are continuing priority operations to bring the remainder under control. I will not give further details at this stage, as the House will appreciate that my first priority is the efficacy of those operations.
	As I made clear in last Friday's letter, Mr. Speaker, our second priority for consideration is the 103 cases in which, as we stated to the Public Accounts Committee, the type of offence was unknown. Data on these cases is now complete, and I can say that there are 11 of these cases where the original offence was within our category of "more serious offences". Consideration for deportation of all but one of these cases has now been completed and deportation action has commenced in respect of seven of them. Since their release, none of these individuals has committed any of the more serious further offences.
	That deals with all the cases where individuals were originally convicted of more serious offences. Of the 1,023 cases in total, consideration has commenced in 574 cases, of which 554 have been completed, with deportation action being pursued in 446 cases. Perhaps I should add that almost all the cases that have so far been given prominence in the media in recent days are not among those upon which I have been reporting to the House, although some do indeed raise important issues of policy.
	Whatever the historic failings, I want to thank all those engaged in the very intensive work that has continued throughout the bank holiday weekend. That has included a major police incident room in Portsmouth, a casework operation in the immigration and nationality directorate in Croydon, work by prison and probation staff, and joint police and IND operations to detain offenders decided for deportation. There is a very high operational commitment to this work, for which I want to express my appreciation.
	From the outset I have acknowledged that there has been a systemic failure within the Home Office, which I regret and for which I have apologised. For example, it was only in 1999 that records on this subject began to be kept at all. However, there have been a number of allegations of inaction by the Home Office in a range of areas over a period of time that have portrayed what I believe to be a false position. I want now to set the record straight.
	There are three distinct issues. The first is the broad issue of the rising number of foreign nationals in our prisons—rising from 5,587 in 2000 to almost 10,000 in 2005— and the policy framework for their deportation. The second is the removal of failed asylum seekers and our action to reach the so-called "tipping point". The third is the specific operational question of the backlog of cases.
	The first issue—the overall approach to foreign national prisoners and their deportation—was the one raised over a period of time by respective chief inspectors of prisons. In summary, they have mainly made the argument that the Government were not paying sufficient attention to foreign national prisoners or their human rights, particularly in relation to detention after the end of their sentences. The Home Office has sought to deal with those concerns by a variety of means, which, among other things, led to the deportation of about 3,000 foreign national prisoners in the years 2004 and 2005—a figure to compare with a total foreign national prisoner population of 9,690 prisoners in 2005. Anne Owers, the chief inspector of prisons, acknowledged some progress on that broad issue in her report of 2004–05.
	The second issue—the removal of failed asylum seekers—was the main focus of the National Audit Office report of July 2005, to which much reference has been made, entitled "Returning Failed Asylum Seekers". The overall conclusion of the report was that the prompt departure or removal of unsuccessful asylum applicants should be prioritised—a conclusion that squared exactly with the Home Office prioritisation of asylum in general and, in particular, action to reach the point where more asylum seekers were leaving the country than there were unfounded new applications. That was indeed achieved in February this year and was widely welcomed.
	The NAO report also noted that action on criminal cases was not being initiated early enough to allow preparations for removal to be made pre-release from prison, although the report acknowledged the increase in resources already directed to dealing with such cases. The Home Office immediately responded to the NAO comment. Additional staffing of 90 caseworkers to come on stream from January 2006 was identified, as were a further £2.7 million of resources to come on line from 1 April 2006. Immigration service staff were placed in four London prisons and surgeries were held in 60 prisons, a weekly report on the foreign national prisoner population was initiated, and new arrangements were made to move foreign nationals who had completed their sentence from prison to immigration detention facilities at the rate of about 300 a month. In addition, management arrangements were strengthened.
	The NAO report was the basis for the Public Accounts Committee evidence session on 26 October 2005, which also focused on the issue of the removal of failed asylum seekers. I have already acknowledged the important role played by the Public Accounts Committee in focusing attention on these matters. I also very much welcome the announcement that the Home Affairs Committee will extend its inquiry to cover this matter. The House may recall that I first raised publicly my concern over the broad policy issues raised by the rise in the number of foreign national prisoners in evidence to the Home Affairs Committee on 25 October last year.
	Following the PAC hearing, the Home Office set about collecting and cleansing the data in order that we could report properly to the Committee and take appropriate action on the true size and nature of the backlog. The first report was made to the PAC in November, but closer analysis revealed that the size of the backlog was larger than previously thought and, crucially, that serious offenders were among the backlog. That was reported to me at the end of March 2006, together with plans to recheck the information before it was put into the public domain, to begin casework on the backlog and to work with prisons and probation on the serious cases. The PAC itself published its report on 14 March. It addressed the issue of foreign national prisoners in the body of its report, but it was not in a position to draw firm conclusions or make firm recommendations.
	The rise in the number of foreign nationals in our prisons and the overall policy framework for dealing with issues of their deportation is a long-standing concern about which detailed work has been proceeding for some months in the Home Office. I would now like to report my preliminary conclusions to the House. These are complex and difficult issues, so I will shortly publish—before the end of May—a consultation paper with specific and detailed proposals from the beginning to the end of the process. The guiding principle will be that foreign nationals guilty of criminality should expect to be deported.
	To achieve that, I will consult in the following areas. First, the data which identifies an individual as a foreign national must be captured at the beginning of the criminal justice system, including at the point of arrest and as the case proceeds through the courts. At each stage, there should be sanctions against individuals who give false information on nationality, or indeed no information at all.
	Secondly, it is important to ensure that the issue of deportation is raised throughout the sentencing process. Following recommendations from the sentencing advisory panel, the Sentencing Guidelines Council will shortly be publishing draft guidelines to set clear criteria according to which judges should make deportation recommendations when sentencing.
	Thirdly, we need to deport prisoners at an earlier stage in their sentence. Ideally, prisoners should serve their sentence in full in their home country. The UK currently has prisoner transfer agreements with more than 90 countries, and we have recently ratified an agreement with India and other such agreements are awaiting ratification. Within the European Union, we are strongly supporting the efforts of the Austrian presidency to secure a directive which will enable the repatriation of prisoners within the EU without requiring the consent of the prisoner. In addition, the Criminal Justice Act 2003 introduced arrangements to consider whether prisoners should be deported before the end of the sentence, and we will consult upon proposals to enable this to happen earlier in a prisoner's sentence.
	Fourthly, I want to make it clear that the Government not only intend to ensure that the current system operates effectively, but seek after consultation to extend the categories of offenders who are considered for deportation. We will therefore publish proposals to consider for deportation a wider range of offenders.
	I want to state clearly that where deportation can properly be considered, the clear presumption should be that deportation will follow unless there are special circumstances why it cannot. We will consult on whether that presumption should be made statutory through primary legislation. Such a presumption would include all criminals sentenced to imprisonment, all those convicted for an offence listed in an order under section 72 of the Nationality, Immigration and Asylum Act 2002, all those on the sex offenders register, repeat offenders and, of course, all those recommended for deportation by the sentencing judge. We believe that there is a strong case for extending those proposals to any individual who is convicted of an imprisonable offence, whether or not a sentence of imprisonment was actually given, and we will consult on that too.
	Those proposals would replace the current practice of considering for deportation only non-European economic area nationals with a sentence of 12 months or more; EEA nationals with a sentence of 24 months or more; cases in which the individual has three lesser convictions in a five-year period; and all cases in which the sentencing judge has recommended deportation.
	Finally, in relation to our policy framework, I have already said that we are now ensuring that all deportation decisions are being taken before an individual is released. That will continue, but I will also consult on the following steps to ensure effective implementation of deportation and removal decisions: the full use of the less burdensome process of administrative removal rather than deportation in eligible cases where individuals have no or limited leave to remain; more effective procedures in relation to psychiatric hospitals; a new power in primary legislation to enable us to detain an individual pending consideration whether they should be deported or removed as a result of their criminal conviction; amending primary legislation so that deportation appeals, save for those raising asylum or human rights issues that are not clearly unfounded, are heard after the individual has been deported from the UK; and the introduction of an automatic bar on return for all those who are subject to administrative removal due to criminality, which is already the case with those who are deported.
	I should add that I will also consult on proposals to achieve a more coherent approach to taking criminality into account in decisions on who is allowed into the country, who is allowed to stay, who is granted settlement and who can acquire British citizenship. These are significant proposals which, as I said earlier, we have been preparing for some months—[Hon. Members: "Oh!"] We have. They will, I am sure, also be controversial, but I hope that, unlike with some previous legislation in this area, we can rely on the full-hearted support of both the main Opposition parties in ensuring that foreign nationals who commit crimes are deported rapidly to the countries from which they come.
	This has been an unedifying episode for all of us in the Home Office who are charged with the protection of the public—[Interruption.] Yes, it has. But I said that I would stay and put the situation right. I have set out the results of the intensive work that is being done by the agencies to deal with the outstanding cases. I have set out the steps taken to improve our systems on foreign national prisoners, including robust procedures that now mean that the appropriate processes are in place, and I have set out my proposals to deport more offenders, more quickly. I commend the statement to the House.

David Davis: The first duty of Government is to protect the public, and the Government have failed in that duty in a most appalling fashion. They have done so, not by failing to identify suspected criminals—although they have done that—and not by failing to catch criminals, but by releasing over 1,000 criminals from their own prisons without consideration. Ministers have lost control of their Departments, and they have introduced a new doctrine of ministerial responsibility—the bigger one's mistake, the more one deserves to stay in one's job. The Home Secretary has tried to make a virtue of the fact that he has told us the facts—[Interruption.]

David Davis: Thank you, Mr. Speaker. The Home Secretary tried to make a virtue of the fact that he has told us the facts. In truth, however, he was forced by the Public Accounts Committee to admit to his failure, and he was dragged to the House to answer for it, both last week and today. We now know that he did not even tell the Prime Minister—who, I see, is giving his usual support. [Laughter.] Last week I asked the Home Secretary four questions; he answered none of them.

Mike Hall: He answered them all.

David Davis: He answered none. He said that he would answer them by the end of the week, but he still had not answered any of them by then. This week I shall ask him eight questions, and the House, and the public, will expect eight answers. Before I do so, however, let me say that of course I applaud any action that will address the problem, although much of it amounts to bolting the prison door after the prisoners have fled.
	I understand that the Home Secretary intends to introduce new powers to create a presumption of deportation for foreign criminals. I applaud that intention, but—[Interruption.] In answer to the Government Chief Whip's sub-vocal heckle, may I remind her of the powers that the Home Secretary already has? The Immigration Act 1971 gives him explicit powers to deport any non-British citizen under section 3(5) if he
	"deems . . . deportation to be conducive to the public good".
	Laws are fine, but the public require competent action.
	Let me turn to my questions. First, there is the length of time that it took the Home Secretary to alert the police to the problem. He and his predecessors were warned several times, as he has now admitted, by Her Majesty's chief inspector of prisons and by some police forces, of the growing magnitude of the problem of foreign criminals being released rather than deported. The Home Secretary himself was warned again by the National Audit Office on 14 July last year. Can he tell the House precisely why he did not take action 10 months ago? Why did he not do 10 months ago what he did last week? At least 400 criminals identified in the Home Office's first submission to the Public Accounts Committee could have been arrested and deported. If, for some inexplicable reason, he was unable to act 10 months ago, why did he not act one month ago, when he had a full list available? Why did he tell the press about the problem before he told the police, giving more than 1,000 criminals the chance to disappear before the police could catch them?
	We are told that from last July, procedures were implemented to increase the number of staff and the resourcing of the unit concerned, and that there is now a "proper case management system"—I think that I quote exactly. So can the Home Secretary explain why we hear persistent reports that that department is understaffed, under-trained, and largely manned by temporaries? Is not the truth that whatever he did it was ineffective, as the rate of release of foreign prisoners into the community went up after July? Is that acceleration in the release of potentially dangerous criminals into the community not a clear demonstration of his own failure?
	The Home Secretary cannot even give us what he promised last week—the full number of crimes committed by the 1,000-plus criminals since their release. Civitas, the respected Home Affairs think-tank, whose director is a member of the Home Secretary's own Statistics Commission, estimates the likely number of convictions—not crimes—for the 1,000 criminals at about 700. That is 700 crimes as a result of this failure. And the Home Secretary did not tell us how many crimes were committed by the 288 criminals released after he was explicitly told about the problem—the criminals who are absolutely and inescapably his own responsibility. Civitas estimates that they would have been convicted for 100 crimes committed within six months of release.
	On Friday the Home Secretary told us that of the 79 foreign criminals he considered to have committed serious offences, deportation action had been started on 70. But only 32 of those 70 have been located. That means that 38 are not in his control, presumably because he warned them through the press three days before. So even on his own figures, he is failing in more than half the cases.
	The Home Secretary should not forget that 1,023 foreign criminals are at issue here. He has just told us that deportation is being pursued in 446 cases. Will he tell us how many of those are within police control? When the Home office completes the deportation exercise, how many of these 1,000 foreign criminals will remain at large in the United Kingdom?
	I am concerned that those 1,000 are just the beginning of the problem. With almost every day that passes, we hear of a new failure. This morning's papers are full of the story of the suspect in the tragic murder of WPC Sharon Beshenivsky. I do not expect the Home Secretary to comment on that case at all, and I will be very careful. As I understand it, the suspect was given indefinite leave to remain in 2000. In the subsequent five years he was convicted of three offences and sentenced to three separate prison terms. Yet in March 2005 the Home Office decided not to deport him to Somalia, even though a year earlier, the Home Office's operational guidance note on Somalia said:
	"there is no longer any policy that precludes the return to any region of Somalia".
	In the past two years, the Home Secretary's office has made more than 2,000 decisions against deportation. I have to ask him, in the light of this and many other examples: is he comfortable that those decisions were made with sufficient regard for the safety of the British public?
	Last week, a whole new category of cases was raised by Lord Ramsbotham, the previous chief inspector of prisons—that of 1,500 prisoners who have no nationality record, or a false record. How many people in that category have been released into the community without consideration for deportation in the last seven years? Again, is the Home Secretary persuaded that this oversight has not unnecessarily jeopardised the safety of the British public?
	Finally—[Hon. Members: "Hooray!"] Labour Members will not be happy about this either, because it is not amusing. Last week one of the murderers of Mary-Ann Leneghan was sentenced to more than 20 years in prison. He had been recommended for deportation on his 18th birthday, but was not deported and was involved in this hideous crime just a few months later. This raises a whole new category of people who are recommended for deportation but who are not, for one reason or another, imprisoned. Can the Home Secretary give us an indication of the size of that category, and whether he has considered policy with regard to such people, since clearly some represent an unnecessary risk to the public.
	Together, those groups represent several thousand people who are a potential risk to the public and should be considered for deportation. It may therefore be that the 1,000 whom the Home Secretary says he has already considered are just the tip of the iceberg. Has he considered these categories in detail, and what he might do to minimise the risk to the public? Whatever his answer, I would like to know why he has not done anything to deal with these potentially serious risks to public safety. There are two possibilities: either the Home Secretary did not know about these problems, and was therefore negligent, or he did know but did nothing effective about them, and was therefore incompetent. The answer is not simply more laws, and it is certainly not just more headlines. The answer is a more competent Home Secretary—and that is the very least the British public deserves.

Charles Clarke: I do not think that it was 29, but I am interested to hear that that is the number that my hon. Friend was able to identify.
	First, I paid tribute last Wednesday, and I will again, to the role of the Public Accounts Committee in this process. It has been a positive process, and that is what the PAC should do. Secondly, in answer to the right hon. Gentleman's question about what I did about the National Audit Office report last July, I have already clearly set out the whole series of measures that I took to deal with its recommendations and to improve our performance in that area. Moving on to his third point, I am the first to concede that there remain issues about implementing that in the most effective way. I do not accept his stricture that the IND, or the Home Office in general, is understaffed, under-trained and so on, but I do think that there is a serious point about way in which we organise ourselves in those areas. We are changing that as a result of the NAO report and other things, precisely in order to address those issues.
	On what the right hon. Gentleman calls the accelerating procedure of failure, the reason for those figures, as my right hon. Friend the Prime Minister said a moment ago at Prime Minister's questions, is that as a result of the NAO proposals we sent immigration officers into prisons, tightened the procedure, identified more problems to take up, and solved more problems. The problem is—I have to be straight about this—that if one tries to sort out these problems, one turns up more problems. That is the situation that must be candidly addressed.
	As for the right hon. Gentleman's friend from Civitas, perhaps I could remind him that, as he knows very well, in an attempt to get all-party agreement about the way in which crime statistics are dealt with, I invited him to nominate individuals to a panel to review that matter. The gentleman concerned was duly nominated by the right hon. Gentleman, and I appointed him because I wanted some consensus, so of course I am interested in his views on all these matters.
	On the question of the people whom the police and the immigration service are still pursuing, I am not, as I said in my statement, going to give a moment-by-moment update on that, but I believe that they are making extremely good progress as a result of the situation that I set out.
	Finally, I come to the list of cases that the right hon. Gentleman raised, including the person allegedly involved in the murder of Sharon Beshenivsky, the cases raised by Lord Ramsbotham, and the case involving the killers of Mary-Ann Leneghan. Those are very serious cases. As the right hon. Gentleman acknowledges, they are not among the 1,000 that we are talking about, but as he also acknowledges, they raise precisely the questions that it is right for us to address in deciding how we deport more effectively people who are guilty of criminality. It is no good the right hon. Gentleman saying that we do not need more laws or more procedures, that it is all hunky-dory and the problems are simply down to poor administration. We need more laws so that we carry matters through properly and I hope that, this time, he will support the proposals.

Nicholas Clegg: The Home Secretary predictably showered the House with a volley of new figures and statistics. We will scrutinise those new figures with the attention that they deserve. We already know from the figures released at the end of last Friday that they pose as many questions as they provide answers.
	For example, why has the Home Secretary not explained to us how he compiled the figures and what definition he used to conclude that only 79 cases related to serious offences? He claims today that, of those 79, deportation action has commenced for 70 but he went on to say that 38 of the 70 have not been accounted for. How can one proceed with deportation action for the 70 most grave offenders if one does not know—or appear to know—where 38 of them are? We need answers to those questions for the statistics that he provided today to have any credibility.
	The Home Secretary has announced new primary legislation. Let us be clear: the current fiasco did not arise because of an absence of legislation or a lack of rules. Yesterday, we found an 86-page document from the Prison Service that provides forensic guidance on how to consider the deportation of non-British offenders. The fiasco did not arise because of a lack of powers enjoyed by the Home Secretary; he already enjoys wide discretion to remove anyone who is deemed not be conducive to the public good. Since 1997, the Government have introduced up to 36 new laws and hundreds and hundreds of new offences. Surely he acknowledges that placing yet more pressure on an overburdened criminal justice system through new rules and laws devised in the panic of the current fiasco might prove little more than a cosmetic solution.
	We will consider positively any measures necessary to deport those who should and can be deported more quickly than at present, and especially the measures that the Home Secretary outlined to encourage offenders to serve their sentences in their home countries once convicted here. However, we will not welcome the measures if they prove, on further reflection and analysis, to be a knee-jerk reaction, designed to grab headlines rather than offenders and to help the Government out of a self-inflicted fiasco.
	Our prisons are grotesquely overcrowded. The probation service is demoralised and under-resourced. The Government are at permanent loggerheads with the judiciary and reoffending rates, which have a direct bearing on what we are considering, are among the highest in the western world, with up to 70 per cent. of young offenders offending again in two years of release from prison. The Government have presided over lamentably low conviction rates for some of the most serious crimes imaginable, such as rape.
	Surely the Home Secretary should start getting a grip on the Government's woeful mismanagement of the criminal justice system rather than indulging in rushed, new legislation in response to recent events. Our focus will remain on the serial incompetence of a system in which the basic rules to examine every case for deportation simply did not operate. The Home Secretary should take political responsibility for that incompetence. He has said nothing today to suggest that Ministers were anything other than neglectful in failing to tackle such grave issues until they were shamed into doing so in recent days. He should do the decent thing—we know that he has done it before—and ask the Prime Minister to release him from his predicament and allow him to resign today.

Charles Clarke: First, when I stated that 70 had been approved for deportation and procedures were going ahead in those cases, that is true and the police are working on it, as I reported to the House. Secondly, I have not sought in any way to hide the fact that the Home Office made serious mistakes. I said that last week, I say it this week and I continue to assert it. As I said in the statement, I believe that several positive things have happened side by side with that mistake and it not right for the hon. Gentleman to say that I did not set them out. We have made significant progress on several matters.
	The hon. Gentleman needs to grasp a key point when he speaks about considering the legislative position. In every deportation case, a battle goes on between the individual to be deported and the state that seeks to deport. The battle takes place in the courts, with a series of judgments appealed through a long procedure. That is the law of the land, as it is entitled to be. However—I stress this in the strongest terms—the battle about case after case, occasionally with important judgments, such as the Chindamo judgment, going against the Government, is a key factor in any Government's ability to act decisively. That is why I say that our response must be to go back to the basis, and make a presumption that non-British criminals should be deported. That is what we will set out. The challenge for the hon. Gentleman and his colleagues in the House and the other place is whether they are prepared to sign up to that principle.

John Denham: Following my right hon. Friend's comments, does he not agree that one of the most unsatisfactory parts of the current law that has been revealed in the past few days is the way in which it requires Home Office officials to judge not only what is in the public interest but the chance of defending a particular case against a subsequent court challenge? Does not that produce a deeply unsatisfactory and inexplicable position for our constituents whereby it appears that Home Office officials have simply decided not to deport somebody who then commits a serious offence? Is not the great advantage of a presumption in favour of deportation not simply that we will not have future backlogs but that the House can say what it wants to happen on behalf of our constituents, and it will be clear when the courts decide in an individual case that such action should not follow?

Charles Clarke: My right hon. Friend is correct. I pay tribute to him and the Select Committee that he chairs because it decided a good while back—partly, I am sure, in response to the NAO report but also for other reasons—to go through the detailed workings of the immigration and asylum system. It did not simply take evidence in the House but considered the current procedures, and so it should because our approach should be scrutinised, precisely for the reason that my right hon. Friend gave. That is why I welcome the Select Committee's decision to widen its terms of reference to include the management of foreign national prisoners. That is important. My right hon. Friend is correct and I hope that the Select Committee will make recommendations to that effect and that the House will listen to them.

Iain Duncan Smith: Listening to the Home Secretary, I am sure that I am not alone in smelling a rat. Again, when a problem arises, a member of the Government comes to the House, denies responsibility and says, "Here's another ton of legislation, which we will lay on the problem to resolve it." The courts have made it clear that the Home Secretary retains the absolute right to make the decision to deport somebody and they will not gainsay him on that. The idea that the proposed presumption will suddenly change that practice is nonsense.
	The Home Secretary misses another point, too. What will he do about those whom he cannot deport? Will they simply wander the country because he could not deport them simply because they could not get a flight?

Charles Clarke: The short answer is that that is a result of my natural generosity of spirit, which I try to show at all times to the Liberal Democrats as I cannot give them any other support.
	My right hon. Friend was the first Member of Parliament to visit me on the day I was appointed Home Secretary. He took me to his constituency office—just off the Lobby—to show me the filing cabinets full of constituents' cases that had not been properly dealt with by the system that was in place at the time, and about which he had made representations. He said to me, "You've got to get this sorted out", or words to that effect. He was right. The point that he made was that the problem went back over a long period of time, well into the term of the previous Conservative Administration. That is what we are trying to put right, and I am determined to achieve that.

Charles Clarke: I am not sure which statement the hon. Lady is referring to, but I do not believe that those views are right. The police have been intimately involved in this approach through their national command centre in Portsmouth, and they have dealt with a large number of issues through the police national computer. I do not think that the specific remarks that the hon. Lady reports are correct, but perhaps she could drop me a note with their particulars, and I will answer them in detail.

Charles Clarke: Actually, that is the position with regard to such a prisoner's human rights under the European convention on human rights rather than specifically under the Human Rights Act. Any individual might or might not have a claim under the European convention on human rights, which, I think, from memory, this country signed up to in 1951. That claim has to be duly considered by the courts, whether the person concerned is on bail or in prison, in whatever circumstances apply. The issue that I raise—I do not know whether the hon. Gentleman, with his great legal experience, will agree—is that we must be more ruthless about examining the actual circumstances of such people. That is why I say that we should have a presumption that someone who has committed a criminal act should be deported to the country from which they come.

Peter Kilfoyle: I welcome my right hon. Friend's proposals to deal with the systemic failures that he has honestly put before the House today. Will he assure me, however, that he will take no strictures from the former Home Secretary, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), whose woeful personal misjudgement allowed two of the biggest drug dealers in the United Kingdom out of prison?

Mark Hoban: My hon. Friend is absolutely right. When companies have lower asset values there is an increase in the level of risk, which will prompt investors to consider the risk-return ratio and think about whether their likely returns from VCTs in the future are sufficient to warrant that investment being made. The Government need to monitor that carefully to ensure that having turned the tap on in VCT funding by increasing the tax relief, a matter to which I will return in later amendments, the consequential changes in the Bill of reducing that relief, increasing the holding period and reducing the gross assets limit, will make VCTs less attractive to investors, thus depriving smaller businesses of the funds that they need to expand and grow. My hon. Friend was quite right to highlight the importance of risk and its role in assessing these investments, and the relationship between small businesses and risk.
	Amendment No. 9 relates to the definition of gross assets that is set out in the Income and Corporation Taxes Act 1988. The amendment revisits that definition, taking into account changes in accounting practice that might have an adverse effect on companies' ability to access funds from VCTs in the future. It is, I regret, a highly technical amendment relating to the definition of gross assets of an investee company. Under UK generally accepted accounting practice, companies were given a choice with regard to the capitalisation of development expenditure: they could capitalise it or expense it. The rules setting out the basis on which that could take place were set out in the standard statement of accounting practice—SSAP 13—"Accounting for Research and Development".
	The permissive nature of SSAP 13 in giving companies that choice, together with the wide application of the prudence concept, generally resulted in businesses writing off development expenditure in their profit-and-loss account. For companies seeking investment from VCTs, and through the EIS, that was good news, because there was no addition to their gross asset figures.
	However, although UK accounting standards remain in place for unlisted companies, listed companies are adopting international financial reporting standards and one of the differences between UK and international standards is the treatment of development costs. Under international standards, development costs can be capitalised if they meet one of the following six criteria: the technical feasibility of the project; the intention to complete the intangible asset for use or sale; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the adequacy of the resources for completion; and the ability to measure reliably the development expenditure.
	The criteria are broadly similar to those used under SSAP 13 and are designed to ensure that only costs clearly identifiable as relating to a project that will be completed, which the company can afford to complete and which will yield financial benefits will be capitalised. In essence, they ensure that only costs that can lead to a realisable asset will be capitalised. If international financial standards matched SSAP 13 in their entirety, there would be no issue, as a company would be unlikely to capitalise those costs. However, there is a vital difference from SSAP 13: the relevant international standard states that where the six criteria are met, the costs should—I emphasise the word "should"—be capitalised.
	So where is the issue for VCTs and investee companies? Capitalised development costs will count towards the gross assets test. That is increasingly important for two reasons: first, the lower gross assets test will bite and, secondly, although the Treasury might argue that IFRS apply only to listed companies and are thus unlikely to become an issue for unlisted companies, in reality I suspect that companies will increasingly adopt IFRS as a basis for reporting. That will be of particular interest to companies who may want an exit route through a listing in the future and may want to implement IFRS from the outset rather than restate their accounts at a later date. Having worked on such exercises in the past, I should prefer to start off with the basis on which I intend to report my results, rather than changing it partway through. If nothing else, it would save on the fees businesses pay to organisations such as my former firm.
	In practice, the adoption of IFRS is likely to mean that more development expenditure will be capitalised than under UK GAAP. Coupled with the reduction in gross asset rules, that could lead to fewer companies in need of capital qualifying for investment under VCT rules. As my hon. Friend the Member for Braintree (Mr. Newmark) suggested, there could be a double effect: first, there will be a change in accounting standards and, secondly, the lower gross asset figure will bite at much smaller companies. The changes will have an impact, in particular, on the software and pharmaceutical industries, many of which seek VCT investment.
	We believe that the decision to transfer to accounting under IFRS should not be hampered by the need to consider that potentially extremely significant adverse impact. I would be grateful for the Financial Secretary's thoughts on what is very much a probing amendment at this stage.
	Amendment No. 13 covers the way in which VCTs manage their assets. Again, it is a technical amendment, which highlights the concerns of a number of VCT managers and their advisers. One of the challenges that faces a VCT is how to manage its investments and any cash balances, while ensuring that once the initial investment period is over it complies with the rule that 70 per cent. of its investments are in qualifying investments—that is, investments in unlisted companies. Changes under the Finance Bill have an impact on the way that VCT managers can manage the affairs of their trusts. Historically, a VCT could place cash in non-interest-bearing accounts as a short-term measure to try to meet the 70 per cent. rule.
	Let me give an example to explain more clearly. A venture capital trust with investments of £10 million fully invested in unlisted companies would meet the criteria as 100 per cent. of its investments are in qualifying companies. A VCT could, for commercial reasons, decide to realise an investment of £4 million. If it put the cash in an interest-bearing account, it would have investments of £10 million but qualifying investments of only £6 million. Therefore, it would fail the 70 per cent. test. Under current rules, the VCT would be able to place the £4 million in a non-interest-bearing account and achieve the 70 per cent. rule by having £6 million in investments and £6 million in qualifying investments. It could then act to return that cash to its shareholders or make a further investment in another company without losing its qualifying status, because it would not be in breach of the 70 per cent. rule.
	There are strong reasons why VCTs would seek to use the cash as soon as possible. Investors focus on returns and if one invests the realised proceeds in a non-interest-bearing account, that is not very good for the overall return of the VCT. There is an opportunity under the existing rules to manage the VCT more smoothly, but there is also commercial pressure to ensure that the assets are used as quickly as possible and in a way that does not disturb the orderly management of the VCT.
	Under the rules in the Bill, that opportunity would no longer be available to VCTs and the concerns of managers have fallen into two categories. Those in the first group say that they would rather the rules were not changed at all. They would make it easier for all VCTs to handle non-interest-bearing deposits and to put cash into them to ensure that the 70 per cent. rule applies. Those in the other group suggest that the rule should not apply to VCTs that have already been set up. Managers might have taken different decisions if they had known that the relief was to be removed from the VCT. Under amendment No. 13, when a VCT has raised money before 6 April 2006, the money could still be placed in non-interest-bearing deposits and fall outside the definition of investments to ensure that it would be easier for VCTs to meet the 70 per cent. rule while bearing in mind that there will still be the commercial pressure to ensure that the money is returned to shareholders or reinvested as soon as possible.
	In conclusion, amendments No. 6, 7 and 8 seek to elicit from the Government their reasoning for reducing the gross asset test and to establish whether they have fully thought through the impact of that on the potential investments of VCTs. Amendment No. 9 seeks to change the definition of gross assets to reflect changing accounting treatment and to find a way in which the reduction of gross asset test could be mitigated to the benefit of certain companies that invest in, and spend a great deal of money on, development. Amendment No. 13 seeks to make it easier for VCTs to manage their own assets in an ordered way rather than having to act precipitately when a realisation is made.

Brooks Newmark: I begin by drawing attention to my entry in the Register of Members' Interests. Although I have never invested in a venture capital trust, I have, over the past 15 years, been both a venture capitalist and an angel investor. I hope that I can bring some of my practical experience to bear on this debate, especially in the context of amendments Nos. 6, 7 and 8. I will not address amendments Nos. 9 and 13, because my hon. Friend the Member for Fareham (Mr. Hoban) thoroughly covered those issues.
	Yesterday, we established that one of the themes of this year's Finance Bill is the Government's ongoing attempt to fix things that are not broken and to fudge those that are. The Bill's treatment of venture capital trusts is no exception to that trend. VCTs have clearly demonstrated that they are performing well in the market and seem to vindicate the Government's attempt to address the "equity gap" through targeted market intervention.
	We need look only as far as the figures given on the website of Her Majesty's Revenue and Customs for the total investment in VCTs. After a peak in 2000–01 of £450 million, investment plummeted to only £70 million in each of the years 2002–03 and 2003–04. That was the situation facing VCTs at the time that the Finance Act 2004 implemented the new income tax relief scheme. In the following year, investment reached £520 million and has surpassed £700 million in the last financial year.
	When the Treasury Committee conducted its inquiry into the success of the incentives it heard that
	"there is very clear evidence"
	that the incentives had reversed "a dramatic decline" in VCT investment, and had led to a
	"significant uplift in the amount of capital that VCTs have been able to raise."
	The Government should be congratulated on that; it is beyond dispute. However, I do dispute that the reduction in the gross asset value of companies eligible for VCT investment is the appropriate way to refocus tax incentives on the equity gap.
	Not only are the Government moving in the wrong direction on this issue, but they are also moving in two directions at once. Part 1 of schedule 14 will alter the level of risk that VCT investors are exposed to by targeting VCT investment in smaller companies. That is the Government's stated aim. However, part 2 of schedule 14 cuts the incentives that investors will receive. The two parts must be considered together because if any of part 1 remains in the Bill, it will have a knock-on effect on the need for the incentives offered in part 2 of the schedule.
	As one industry analyst has said, the Government's proposal
	"has changed the risk and reward profile of VCTs significantly".
	Another comments that the change
	"appreciably alters the risk-reward profile of private-equity investment by personal taxpayers."
	Since bad news comes in threes, let me offer one further comment:
	"The reduction to company size greatly increases the level of investment risk. Smaller companies are normally, by their nature, more risky."
	That is the point that I made to my hon. Friend the Member for Fareham. That problem has long been foreseen.
	In 2003, the Treasury conducted its own analysis of the likely consequences of tinkering with the balance between risks and return. It concluded:
	"If there were clear evidence that this would reduce the attractiveness of investment in VCTs, there might be a case for enhancing tax reliefs at the same time as tightening the scheme's focus."
	Reducing the gross asset value of eligible companies was always considered to be an alternative to altering the structure of incentives.
	Three years later, the Treasury is determined to pursue contradictory objectives by increasing risks and cutting incentives at the same time. The position is simply not sustainable. Instead of fundamentally altering the balance between risk and return, the Government should be ensuring greater investor protection. Bearing in mind that there are already a healthy number of business angels available to provide seed capital for high-risk start-ups, I question whether it is appropriate to encourage individual investors into higher beta investments in companies with a gross asset value under the proposed new limit.
	This concern is growing in currency. In November, the chief executive of the Financial Services Authority told the Treasury Committee that, despite having issued warnings to investors and VCT providers, the FSA
	"need to be perhaps a little smarter on how we convert the data we put on our website into the information that goes into the hands of the population."
	The Government have a responsibility to keep a grip on the balance between the risks and rewards offered by VCTs. Changing both sides of that equation at the same time is imprudent.
	Nevertheless, I recognise that there has been some justified concern that VCTs are not operating in the way that was intended when they were set up 10 years ago. Foremost among those concerns is the one about the practice of parallel investment, in which two or more VCTs under the same management act together to invest beyond the £1 million investment limit imposed on each separate VCT. As Lucius Cary, the founder of Oxford Technology VCTs, has said, although that behaviour
	"may be technically legal, it is pushing the boundaries and undermining the original objectives of the legislation."
	Clearly, VCTs clubbing together to take part in larger management buy-outs is a problem, but it is a problem that was foreseen. The Treasury's report into the equity gap, which dated from before the changes included in the Finance Act 2004, examined the issue of regulating concert parties in order to assist early-stage investment. The report suggested that
	"the scheme rules could place restrictions on VCTs forming part of an investment syndicate that collectively invests beyond the £1 million upper investment limit."
	If the Government remain concerned by parallel investment, Ministers should confront the issue head-on and not seek to address it by the roundabout route of restricting the gross asset value of eligible companies.
	I want to return to my substantive objections to the changes proposed in part 1 of schedule 14 and to my reasons for arguing that they should not stand part of the Bill. Based on my experience as a practitioner, I believe that restricting the gross asset value of eligible companies to £7 million before investment and £8 million immediately afterwards does not focus on the real equity gap. If anything, the limits have been moved in the wrong direction and the probing amendments tabled by my hon. Friend the Member for Fareham are modest in seeking to preserve them at the current level.
	There are an abundance of business angels who are capable of providing seed capital—that is generally provided for companies with gross asset values of £1 million to £3 million—to kick-start small businesses. The real difficulty that businesses continue to face is in accessing second-round financing. That is the issue. Many individuals who came to me when I was in the business before I came into the House would complain that there was a lack of access to capital once companies got above roughly £5 million. We should address that gap between £5 million and £25 million.
	Further restriction of the gross asset value of eligible companies would be retrograde. I appreciate that this is not part of the amendment, but we should be looking to raise the limit to £25 million instead of slashing it. Recently, in another place, Lord MacGregor of Pulham Market said of the existing gross asset value limit:
	"There is clear evidence that it is companies above that level which need the venture capital investment. The limit has not . . . been indexed, and it needs to be looked at again."—[Official Report, House of Lords, 16 March 2006; Vol. 679, c. 1410–11.]
	The Government have indeed looked at the matter again, and drawn the wrong conclusions again. That is a judgment based on my experience in the industry. The change in gross asset value in schedule 14 is too sudden and significant to be undertaken without greater industry consultation and I urge the Government to reconsider their decision.

Rob Marris: I understood the hon. Gentleman to be saying that his preference would be to leave things the way that they are, which I assume to mean that he supports amendments Nos. 6 to 8. I understand that he has had difficulty getting the figures. However, in his methodology for approaching the question of encouraging investment, especially in some of the riskier areas, he is looking at only half the equation, as I suggested earlier. If he was to leave things as they are, the enterprise investment scheme tax relief would be capped at £200,000, not £400,000, and, furthermore, the tax relief would revert from the current rate of 40 per cent. to 20 per cent. If we could get the figures for the whole equation—the changes to both tax relief and the capital limits—he might find that he supported the Government.

John Healey: The hon. Gentleman re-poses the questions that he posed earlier. I have not yet come to the points that he and others made. I was about to turn to the specific points raised by the hon. Member for Fareham, then to those of the hon. Member for Braintree (Mr. Newmark) and then on to those of the hon. Member for Ludlow (Mr. Dunne).
	The hon. Member for Fareham asked the same question, namely, what is the basis of the new gross assets test and the level at which we have set it. He, too, expressed concern that it will somehow lead to neglect of manufacturing industry, particularly relatively small business services companies. I will share with him some of the analysis that underpins the decision to set the new gross assets test at £8 million and £7 million. Analysis of the investments made in the VCT scheme and the enterprise investment scheme shows that investments in companies with total assets of less than £8 million are proportionately higher in technology, business services and manufacturing. All such companies are higher-risk sectors, which the Government therefore want to target. By way of contrast, VCT and EIS investment in companies with total assets of more than £8 million is proportionately higher in sectors that tend to be asset-backed and therefore less risky forms of investment, such as the hotel sector, bars and catering, wholesale and retail. Having assets clearly increases their ability to put up collateral against loans, so they are less likely to face the same problems that small firms in some other sectors face in accessing finance. The hon. Member for Fareham may be interested to know that the average size of a company invested in under a VCT is £3.8 million.
	The hon. Gentleman also asked whether we will monitor the impact of these changes, and the short answer is that of course we will. We have done so since we took responsibility for the scheme and we will measure and monitor the impact on the funds raised, on the investments made, and on small and growing firms. We will also monitor evidence of change in terms of a finance gap.
	The hon. Members for Braintree and for Ludlow spoke from their own personal experience. I was interested to hear about that, but it has led them to draw conclusions rather different from our own and from many experts and specialists in the field. I point out to the hon. Member for Braintree in particular that riskier investments that have difficulty raising other forms of growth capital are precisely where the market failures lie and where the case for Government intervention and support is strongest. Our proposed change in the gross assets test is designed to ensure that significant Government support is well justified and well targeted.
	The package in schedule 14 to which the hon. Member for Braintree referred will increase, rather than reduce, the incentives to invest, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) said. I suspect that we will discuss this issue in more detail when we consider amendments Nos. 10 and 11, so I shall not stray there, except to point out to the hon. Member for Braintree—who mentioned the risk-reward balance—that the package includes setting the rate of income tax relief for investments in VCTs at a new and increased level of 30 per cent.
	I appreciate the tribute that the hon. Member for South-East Cornwall (Mr. Breed) paid to—

John Healey: My suspicions, Sir John, were precisely confirmed by the hon. Gentleman's intervention.
	Perhaps I may turn, as I had started to do, to the contribution of the hon. Member for South-East Cornwall, whose tribute to the success of the economy under this Government—and particularly the ongoing success of the venture capital schemes—I appreciate. He was right to say that the UK is one of the leading economies; in fact, a recent US report described the UK as the best business environment for small firms to access investment finance in. On the particular set of arguments that he laboured, I should point out that the package of changes in clause 91 is not about reducing cost or reducing support for this form of business investment. It is about focusing such support, first, where it is most needed; secondly, where the greatest value to the taxpayer lies; and thirdly, where it is likely to make the greatest contribution to the growth and productivity of the UK economy.
	I stress that this package of reforms is not about looking for savings. If the hon. Gentleman consults the Red Book, he will see that the scorecard cost of these proposals, which were announced in the Budget, for the next financial year is minus £15 million. In other words, for that and the following year, the additional cost of the proposals to the Exchequer is £15 million. He may also be interested to know that the cost of such schemes this year is £220 million.

John Healey: I know that the hon. Gentleman is keen on sunset clauses, but in this instance, the short answer to his question is no. I think that he was on the Finance Bill Committee, and he almost certainly participated in proceedings on the Finance Bill 2004, when we introduced the temporary two-year uplift of the rate of income tax relief available on VCTs from 20 per cent.—the ongoing rate—to 40 per cent. Although I did not refer to the concept of a sunset clause in moving that provision, it was time-limited, so I am sure that it meets with his approval at least in retrospect, even if he did not support it at the time.
	Amendment No. 9 seeks to exclude any capitalised research and development expenditure from the calculation of a company's gross assets for the purposes of the qualifying test. The hon. Member for Fareham said that it is a probing amendment, and I hope that he will be convinced of my view that it is neither necessary nor desirable. Let me try and explain why.
	The gross assets test, as I said, is designed to target smaller high-risk companies for investment under the schemes by focusing on the level of assets on the balance sheet. The legislation deliberately does not define the assets to be taken into account, but as is our approach in general, it follows accountancy practice. If the tests were to diverge from accepted commercial accounting rules, more complex legislation would be required, which neither the hon. Gentleman nor I generally advocate. It could lead to additional burdens on the conduct of VCT businesses. However, the international accounting standards, IAS 38, have introduced a requirement to capitalise research and development expenditure in certain circumstances, whereas the UK standard to which the hon. Gentleman referred, SSAP 13, states that that treatment is optional. In either case, the range of circumstances in which R and D must or can be capitalised remains limited to certain development costs, not research costs.
	Expenditure, therefore, will be capitalised only where it is already established that the outcome will be a marketable product—in other words, cases where the company has a genuine asset that can be valued on the balance sheet. The effect of the amendment would be to open up the scheme to companies that have already developed valuable assets with a balance sheet value above the threshold of the scheme.
	We have already introduced the research and development tax relief, which is widely recognised as an effective, generous and appropriate policy measure. We announced in the Budget that it would be extended to provide additional support for mid-sized companies with up to 500 employees. The Opposition are effectively asking us for another form of indirect support for research and development. The right mechanism for that support, I suggest, is the R and D tax credit. It targets R and D expenditure directly and does so in a way that is widely accepted to be an effective form of incentive for research and development.
	Finally, amendment No. 13 seeks to exempt money raised from venture capital trusts prior to the current tax year from the requirement that it is invested in line with the objectives of the scheme. The 70 per cent. rule for venture capital trust investments, as the hon. Gentleman explained, already allows flexibility on up to 30 per cent. of the value of a VCT's fund. That is generous enough to allow VCTs the flexibility that they need to operate, and the Government's proposed change simply closes a loophole that makes it possible to get round the test.
	Let me dwell on the rule change and the accusation of retrospection, which I do not accept. What we are proposing will help to ensure that the scheme meets the policy purposes for which it was introduced, and makes a contribution to the growth and productivity of this country and our small firms, as intended. The 70 per cent. rule about the funds from the VCT being invested in qualifying investments was the original intention of the scheme. Rules were drawn up to achieve that, and it is the basis on which approvals have been sought by VCTs and given by the Government.
	It cannot be right that funds raised with a significant tax relief are not used for the purpose for which the tax support was intended. It cannot be right that fund managers have a get-out if they fail to make the level of qualifying investments that are often in their prospectus. It cannot be right also that investors' expectations that their money will be invested in small companies with high growth potential are thwarted by the funds instead being kept in cash or non-interest-bearing accounts.
	I urge the hon. Gentleman to bear it in mind that the measure will not apply to funds raised before 6 April this year. It is not designed to catch inadvertent breaches. If there are inadvertent breaches of the 70 per cent. rule, they should be reported, together with a plan to correct them, to HMRC, which will not take the enforcement action that would otherwise be required. The measure is not a device that the majority of VCTs use or need to use in order to maintain their adherence to the 70 per cent. qualifying rule.
	When those considerations are added to the fact that we are not removing the essential generous flexibility of the 30 per cent., it is clear that the amendment is not appropriate. The hon. Gentleman, the hon. Member for Braintree or the hon. Member for Ludlow may know that one of the leading VCT advisers advises all its clients that they should aim not for 70 per cent., but for 80 per cent., so that they have sufficient flexibility to deal with the peaks and troughs of the cycle.
	Clause 91 ensures that the legislation operates effectively in requiring that the funds raised by VCTS are directed towards qualifying companies. I say to the hon. Member for Ludlow that we see no reason why the VCTs should have difficulty adapting to the change by next year, when it comes into force. The provisions of schedule 14 are designed to increase the effectiveness of the venture capital schemes—

Mark Hoban: I thank the Minister for the effectiveness of his reply. I shall comment first on amendments Nos. 6, 7 and 8. He makes a persuasive case for the reduction in the asset limits. I am grateful, as I am sure is the VCT industry, for his reassurances that the situation will be kept under review and action taken where necessary. The House would welcome regular updates on the monitoring of the nature of the investments undertaken by VCTs working under the new asset limits.
	On amendment No. 9 on accounting practices and the differential treatment that there can be under UK and international standards for the capitalisation of development—the right hon. Gentleman was right to distinguish between research and development—the issue is not so much that one group of businesses would get a double benefit for R and D, as that a business that applied international financial reporting standards could go over the gross asset test, whereas the same business using generally accepted UK accounting practice could fall below the gross asset test.
	Given the difference in accounting practice for the treatment of capitalised development costs under the UK and international financial reporting standards, a company could benefit from VCT investment while another does not. I hope that the Financial Secretary will reflect on that, as we consider unlisted companies' take-up of international financial reporting standards, and whether that causes some businesses to lose out on VCT relief because they adopt one method of accounting rather than another.
	On amendment No. 13, I also welcome the Financial Secretary's reassurance on inadvertent breaches of the 70 per cent. rule and his comments on the associated guidance that HMRC will issue. Although his remarks are absolutely right about the importance of such money being invested—that is what investors in VCTs would seek—it is important that the guidance on inadvertent breaches should consider situations where investments might well be realised and the trust might breach the 70 per cent. rule, pending a further investment or the return of cash to its shareholders.

Mark Hoban: As ever, my hon. Friend makes an important point about the parliamentary scrutiny of such issues and the way in which we can address them before the consideration of the Bill has been completed, and I am sure that the Financial Secretary will take that point on board. I hope that the industry and its advisers are fully consulted on the guidance, to ensure that it tackles inadvertent breaches. With that, and the Financial Secretary's assurances, I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.

Mark Hoban: The hon. Gentleman needs to remember that there are a series of three changes in schedule 14 that impact on the sales of VCTs, and it is very difficult to pull apart the impact that each one will have on sales. My hon. Friend the Member for Ludlow referred to Henry Chaplin in the context of the impact of the reduction in gross asset values. Some people will point to a later amendment on the holding period as being the driver behind this; others will look at the change in tax relief. The complexity arises in part because of the way in which the amendments have been selected for debate, but also because of the complex interaction between holding periods, gross asset tests and tax relief.

Mark Hoban: I beg to move amendment No. 12, in schedule 14, page 76 [Vol II], leave out lines 1 to 13.
	The amendment probes the third element of the change to VCTs. Until the Finance Bill was introduced, investors in VCTs benefited from the full income tax relief, if they held their investments for at least three years. The Finance Bill lengthens that holding period to five years, which is one of three measures that could impact on the attractiveness of that form of investment in the VCT market and consequently the flow of funds into VCTs and therefore into small and growing businesses.
	Again, I shall quote Mr. Robert Drummond, who is a former chairman of the British Venture Capital Association:
	"With the 30 per cent. income tax relief rate the Chancellor has found a compromise between maintaining the current level and returning to 20 per cent., but this change together with the increase in the minimum holding period from three to five years, appreciably alters the risk-reward profile of private equity investment by personal taxpayers."
	In the context of the interlocking web of proposals, Mr. Drummond is arguing that the holding period may have the impact of discouraging investment in VCTs.
	I can see the benefit for VCTs and companies that receive investment of increasing the holding period from three years to five years, which will give both the VCTs and the companies reassurance, stability and the ability to plan for the long-term. However, it is difficult to strike a balance, because one might end up with a scheme that is perfect for the interests of the companies and VCTs but that is not sufficiently attractive to investors.
	I seek an explanation from the Financial Secretary on why the five-year period was chosen—the next amendment proposes lengthening the holding period—before a VCT investor can gain the full benefit from the reduced tax relief.

John Healey: We propose to lengthen the shareholding period for investments in VCTs following formal and informal representations from the VCT industry, which is the direct answer to the hon. Gentleman's question about the five-year period.
	Mr. Andrew Holmes, chairman of Quester Capital Management Ltd, is not untypical. He wrote to the Chancellor in January, suggesting that we reinstate the original five-year holding period, which he described as one method of
	"making the whole scheme more clearly matched to the realities of building young companies over the longer term".
	I point out to the hon. Member for Ludlow (Mr. Dunne) that that is the principal purpose of those schemes. There was an interesting reaction from the industry on the holding period. Ben Yearsley of Hargreaves Lansdown said:
	"It means there will be fewer short-term investors hoping to making a quick return—that is not a bad thing."
	The announcement was widely welcomed. The Sunday Times reported:
	"The increased holding time had been welcomed by advisers, many of whom believed that the three-year rule encouraged investors to think of VCTs as short-term investments when they really should be held for a longer time".
	Unlike the application of the 70 per cent. rule which, after April 2007, will apply to all funds, including funds raised before this financial year, the change to the holding period will apply to new funds, not to funds raised before 6 April 2006. There is broad consensus in the investment community that the change is positive: equity investments in small firms need to be longer term to provide stability for the firms in receipt of investment, and sufficient time is required to generate genuine gains for the investor. I hope that the House accepts those arguments and the fact that we are making the right changes in clause 91. I therefore hope that the hon. Member for Fareham will withdraw his amendment.

inheritance tax

9 In section 104(1)(a) of IHTA 1984 for "(b) or (bb)" substitute "(b) (bb) or (bc)".
	10 In section 105(1) of IHTA 1984 after subsection (bb) insert—
	"(bc) eligible shares in a venture capital trust as defined by section 842AA(14) of the Taxes Act 1988;"
	PART 7

Mark Francois: Clause 106 is arguably the key part of part 4, in that it defines some of the principal conditions that companies must meet in order to qualify for real estate investment trust—REIT—status. That is why we selected it for debate in a Committee of the whole House. I am sure, however, that we will have plenty of opportunity to explore the other 42 clauses relating to REITs in more detail upstairs in Committee. I look forward to debating the subject with the Economic Secretary in a few weeks' time—I genuinely hope that it will be him.
	As I said on Second Reading, Her Majesty's Opposition welcome the introduction of REITs in principle, having pressed the Government to adopt such a structure for several years. However, we are generally concerned to get the detail right, and we will table amendments that are designed to ensure that, from the outset in January 2007, the concept operates in the positive interests of the United Kingdom economy. That also applies to the amendments that we are debating today.
	My first question to the Minister concerns the detailed regulations that the Government have offered to provide, which are designed to fill out some of the detail of how the provisions in the Bill, including clause 106, will operate in practice. When are those regulations likely to be published? Specifically, are they likely to be available before the Bill goes into Standing Committee next week? It would obviously be beneficial to have sight of the regulations, and ideally some time to digest them and consult on them, in order to give context to many of the clauses that we will subsequently be expected to debate upstairs. I am not alleging any skulduggery on the part of the Government, but merely saying that it would be handy to have a definitive date for when the regulations are likely to be published. Perhaps the Minister can seek inspiration on that point and let the Committee know before we conclude our proceedings on REITs.
	The concept of REITs has been around for some time, having been introduced in the United States as far back as the 1960s. Similar vehicles exist in several other countries, including Australia, Japan and European countries such as France. Germany is also in the process of considering the introduction of a REITs regime, although I understand that its preparations are not as far forward as our own.
	In essence, a REIT is designed to facilitate collective investment in property, which by its very nature often requires large amounts of capital. REITs will enjoy key tax advantages that create a transparency between the ultimate investors and the underlying investments, and they will be exempted from corporation tax on property income and from capital gains. In return, REIT companies must meet certain key conditions, including that 75 per cent. or more of their assets must be investment property, that 75 per cent. or more of their income must be rental income, and that at least 90 per cent. of their profits must be distributed as a dividend to their investors, who will then be taxed on those dividends as property-related income. As the explanatory notes to clause 106 state:
	"The company conditions are designed to restrict the scheme to publicly listed companies with their equity and debt finance arranged in such a way as to ensure that tax-exempt profits are paid out to shareholders as taxable profits under Schedule A."
	However, the Government have laid down in clause 106 several additional conditions that a company must meet in order to qualify for REIT status and the attendant tax benefit that it confers. Those six key qualifying conditions can be summarised briefly as follows. First, the REIT company must be resident in the United Kingdom. Secondly, it must not be an open-ended investment company—an OEIC. Thirdly, it must be quoted on a recognised stock exchange. Fourthly, it must not be a close company. That is usually defined as being controlled by five or fewer people, but I give the Minister notice that there is a particular technical point on that, to which I want to return in a few minutes. Fifthly, it must have only one class of ordinary shares, plus potentially only non-voting fixed-rate preference shares. In other words, it must be confined to only those two types of share capital. Sixthly, its borrowing must effectively be limited to reasonable commercial terms.
	There is an additional point about the specific importance of the clause 106 conditions. Some other conditions for which the Bill provides, such as the income acid test and the gearing restriction, if breached, do not necessarily result in the withdrawal of REIT status. However, the strictures of clause 106 conditions could be harsher in that a breach would result in a company being expelled from the REIT regime. To use a footballing analogy, a breach of some of the non-clause 106 conditions can result in a booking—a yellow card—but a breach of one of the clause 106 conditions is currently a sending-off offence. A company would be red-carded for such a breach.
	Given the added importance of those conditions, our amendments are designed to elicit further information from the Government about how some of them would work in practice and whether any flexibility is envisaged for their operation. As we know from the consultation exercise, flexibility has been introduced for interpreting some of the other conditions in the Bill.
	Amendment No. 4 would expand a third of the qualifying conditions in clause 106 to include property investment companies that are listed on the alternative investment market of the stock exchange, or AIM, as it is more popularly known. I understand that there was something of a problem for the property industry during the consultation process. We are therefore understandably keen to press the Government on their thinking on the matter. We have received some representations about expanding the concept even for unlisted companies. However, for the moment, we have decided to confine ourselves to pressing the matter in relation to AIM.
	AIM-listed companies already provide a legitimate form of collective investment, so why have the Government decided to exclude them from the REIT regime from the start? On a practical level, property companies that are registered as REITs are likely to enjoy significant tax advantages over those—usually smaller—companies, that are denied the advantages that REIT status confers. There could therefore be considerable consolidation in the market as REITs take over other property companies, such as those on AIM, which cannot qualify for REIT status. That is potentially unfair and, over time, could mean that the UK property market was increasingly dominated by a relatively small number of large REIT companies. I presume that the Government did not intend that. We would move in the direction of an oligopolistic market and I am not sure that Ministers want that.
	Moreover, AIM-listed companies might come under pressure to convert to a full stock exchange listing before they were ready for it, principally to qualify for REIT status, thus potentially causing a distortion in the orderly evolution of the market sector. Why not, therefore, expand the condition to cover at least AIM-listed companies, which meet all the other conditions that the Government have set, and thus facilitate greater diversity in the REITs market available to investors? There is a strong common-sense argument for doing that.
	The British Property Federation has provided a note on the subject. It argues:
	"The property industry in the UK believes the consequence of limiting REITs to listed companies will be to unnecessarily limit the development of REITs because it heightens the barrier for new entrants to the UK REIT regime and as a consequence makes it that much more difficult for new REIT companies to form. Clearly, this has consequences for those seeking to establish new investment vehicles in traditionally under-invested property markets, such as the residential private rented sector."
	I am sure that the Government want to boost the residential private rented sector, not least to provide a supply of housing for those who find it difficult to obtain somewhere to live. It is worth bearing in mind that the BPF is intimating that, if the companies are not allowed to obtain REIT status when they are on AIM, that might hinder the objective that I outlined.
	Furthermore, the BPF points out:
	"The restriction is particularly difficult to understand when there are alternative markets that are an established feature of the UK collective investment market, including for example the Alternative Investment Market. AIM is specifically designed to help emerging companies that wish to be open to public investment yet would find it difficult to sustain themselves on a recognised stock exchange at an early stage in their development. The proposed Amendment"—
	that is, our amendment—
	"seeks therefore to open up the current Clause 106 legislation to allow companies listed via AIM to convert to REIT status. This would enable the development of new or smaller companies into the REIT market and thus help to ensure REITs are a sustained successful investment vehicle across the property markets."
	The BPF summed up its position on this question in the following terms:
	"In summary therefore, our main concern with Clause 106 as it is written is that while it is likely that a number of existing listed property companies will convert to the new REIT regime, the provisions do not cater for the growth and enhancement of this market which will in turn bring forward investment benefits and opportunities to improve the quantity and quality of property investment in underinvested markets. In short, by so restricting the rate regime to only 'recognised stock exchange' listed vehicles the government may inadvertently smother the ability of the market to develop."
	I should say to the Minister that I do not think that that is in any way polemical or over the top. I genuinely believe that it is a perfectly reasonable point.
	On 5 April 2006, the Financial Times published a special supplement entirely devoted to the subject of REITs, and it made very interesting reading. It gave a generally positive welcome to the concept. However, it also contained an article by Peter Damesick, the head of research at C.B. Richard Ellis, which was interestingly entitled:
	"Distortions the Government needs to remove".
	In it, Mr. Damesick argued the following:
	"The rules further limit the pool of potential Reit creators by excluding companies listed on the Alternative Investment Market (AIM). An AIM listing could serve as an incubator for small Reit start-ups, potentially capable of growing into larger Reits with a full stock market listing. The hurdles put in the way of Reit creation stand in marked contrast to the provisions introduced in the US in the early 1990s to enable the easy transition of private property companies, trusts and partnerships into the listed Reits sector."
	Importantly, he then adds:
	"These proved fundamental to the US market's subsequent rapid growth."
	The Financial Times estimates that more than $300 billion is now invested in US REITs, and notes that spreading the listing base for the concept was important in generating that substantial degree of investment. That is presumably something that the Government would eventually like to emulate, at least on a relative scale for the United Kingdom. I think that $300 billion worth of investment in UK REITs within the first couple of years might be a rather ambitious target. Nevertheless, I am sure that the Government want to encourage as much investment into UK REITs as is practically possible. I would therefore stress to the Minister that the US experience has shown that widening the listing base has been instrumental in encouraging additional investment and in getting the concept to take off. I am informed that it was in the 1990s that it really took off in the United States.
	The alternative investment market is generally regarded as a success story and, if the Minister will allow me to say so, it was a Conservative Government who introduced it in 1995. We would like to make REITs a success story too. Therefore, we would genuinely like to know why the Government are reluctant to consider expanding the REITs concept to the alternative investment market. We would like to hear their explanation. If they will not concede this point this afternoon—I hope they will—will they at least make a commitment to keep the question under review once the REIT regime rolls out in practice next year, and to take another look at the matter once the regime is up and running? I look forward to hearing the Minister's response to this amendment with particular interest.
	I turn now to the reasons behind our amendment No. 23, which relates to close companies. I should stress that this is a probing amendment, but it would, in principle, delete the fourth of the six qualifying conditions from clause 106. That condition is that a REIT must not be a close company, which is broadly defined as a company that is controlled by five or fewer people. If the other conditions remain in place and the company remains publicly quoted—either on the full stock exchange or AIM, as previously discussed—why, in principle, should a company be forced out of the REIT regime because it is controlled by five or fewer people? We would be interested to hear the Government's thinking. For instance, a company that breaches that condition would automatically be removed from the REIT regime. Companies might therefore be required to monitor their shareholdings continuously to ensure that the condition is not breached. Because the actions are to some extent outside the company's control, however, the management might not be able to anticipate or even prevent such a breach, even though, were it to occur, it might cost them their REIT status, and in some circumstances it might not be their fault.
	During the consultation exercise, the Government conceded to some extent on a different condition whereby they originally intended to limit individual shareholdings in a REIT to 10 per cent. Some flexibility has been introduced into the Bill whereby regulations will restrict distributions to holders of more than 10 per cent of shares in a REIT but, interestingly, will apparently not remove REIT status if the 10 per cent. limit is breached, as the condition in clause 106 relating to close companies would.
	The Government have therefore given way to some extent on the 10 per cent. limit, and we appreciate that they might be reluctant to allow a single shareholder to control a REIT. We understand that that was a particular concern of the Government's throughout the consultation process, and we are not challenging that point directly. There is a difference, however, between one and five. Can the Economic Secretary therefore explain why the close company condition is still such a necessary one, especially given that if a company fails to meet it just once during a year it might lose its REIT status automatically, which could cause uncertainty for both the company's directors and potential investors. Investors might be worried about putting money into a REIT company if they thought that they might inadvertently breach that condition and therefore lose the REIT status and some of the tax advantages conferred by it. That is a reasonably important point, and we genuinely want to probe the Government's thinking on it.
	In addition, I want to raise a technical point in relation to amendment No. 23 and close companies, as I tried to intimate to the Economic Secretary when I began my remarks. A close company is defined in section 414 of the Income and Corporation Taxes Act 1988. Broadly, such a company is controlled by five or fewer shareholders. There are exemptions to that rule of thumb, however, as I am sure that the Economic Secretary is aware. For instance, a company that would otherwise be a close company is not so if it is controlled by another company that is not close. As the British Property Federation, which has asked me to raise this question, has pointed out:
	"As currently drafted the provisions would seem to catch shares held by an exempt pension fund as well as a non-close company. This is because section 414(5) is extended to pension funds by section 414(7)",
	of the Income and Corporation Taxes Act 1988. The BPF assumes that that is intended, as do I.
	As one of the intentions of REITs is, I presume, to attract investment by institutional investors, not least pension funds, it would be helpful to clarify that question, either this afternoon or perhaps when the guidelines are published. I admit that the point is rather technical, but that is partly what this process is for, and it would be helpful for pension funds particularly to have any uncertainty removed. Perhaps the Economic Secretary will seek some inspiration and respond on that question this afternoon. If not, perhaps we will hear from him when the guidelines are published—in the near future, I hope.
	Amendment No. 24 asks for the Chancellor to prepare a report to Parliament by March 2007, and annually thereafter, on the operation of the REIT regime. The report should include the number of companies that have applied for REIT status, under the auspices of clause 109, and should also record their market capitalisation. The purpose is to monitor the initial operation of the scheme, and to report to Parliament on its progress
	The first report would be due within three months of REITs' coming into force in January next year. I realise that that is quite a tight time scale, but there is an intention behind it. It would provide an early indication of the popularity or otherwise of the concept: we would see an early snapshot of the degree to which REITs are catching on in the United Kingdom. I think that that would be helpful, given that a number of people—not least Members of Her Majesty's Opposition—have been pushing the Government to adopt the concept for a number of years.
	Once the idea has bedded in, it would also be helpful to have annual updates on its progress, not least so that we can assess whether REITs are generating the income for the Treasury that it has estimated will be forthcoming—chiefly from the entry fee for property assets which are being placed in REITs, which I think is now set at about 2 per cent. I appreciate that that fee can be paid in instalments over a period of four years, and that when we look at the figures for the first few years, if a number of companies that elected to pay in instalments are doing so, the full amount of money may not be recorded because some may only have paid part of the fee; but I think we can all allow for that statistical caveat. It would still be helpful information for the House, and indeed the market.
	The Red Book estimates that the income from REITs to the Exchequer is likely to be some £320 million by the end of 2008–09. In other words, the Treasury thinks that REITs will raise about a third of a billion pounds between January 2007 and then. It would be helpful to have a specific reporting mechanism enabling Ministers to tell the House whether the targets had been met, allowing for the caveat relating to the four-year spreading of the 2 per cent. entry charge.
	As I said at the outset, we want the scheme to be launched successfully in January 2007, and we are prepared to work positively with the Government to that end. I hope that the Economic Secretary will accept that commitment in the spirit in which it is genuinely offered.
	Clause 106 forms a key part of the REITs regime in defining some of the headline conditions that a company will have to meet to qualify for REIT status and the attendant tax advantages that it confers. We want to press the Government on why the concept should not be expanded to include companies listed on the alternative investment market, why they think that close companies should be barred from REIT status, and whether they would consider producing an annual report on the progress of the concept once it is up and running.
	I look forward to hearing from other hon. Members and, I suspect, from right hon. Members, following the speeches on Second Reading. I particularly look forward to the Economic Secretary's reply, to which I shall listen with interest.

George Young: I begin by commending my hon. Friend the Member for Rayleigh (Mr. Francois) on his thoughtful and well-informed speech. I refer, as I did on Second Reading, to my entry in the Register of Members' Interests.
	I hope that the Minister will be able to respond to one matter raised by my hon. Friend; the elephantine gestation period for real estate investment trusts. We spent most of yesterday discussing some ill-considered proposals in the Finance Bill that were rushed through with the minimum of consultation, whereas today we are debating a relatively non-controversial proposal that has all-party support and has been around for about 10 or 12 years.
	It would be helpful if on clause stand part, in response to the debate or in Standing Committee the Minister responded to some of the matters that were raised on Second Reading but which, understandably, he did not have time to address. Will he say why we have had to wait so long for a proposal that is not particularly controversial, which replicates the investment trust regime and REITS, and which, as my hon. Friend said, exists elsewhere?
	I shall make two points; the first is on dead-weight costs, which were mentioned in the Financial Secretary's winding-up speech in the previous debate. I do so in the context of amendment No. 24, which asks for an annual report. Do the Government believe that REITs will simply be a new vehicle for existing activity or a vehicle that encourages additional activity that would not otherwise take place?
	My impression from reading the consultation papers and some of the debates on the subject is that most of the interest in REITs comes from existing, well-established companies that envisage reversing into REITs and carrying on doing roughly what they were going to do before. The original concept of REITs was somewhat different, however; it would be a new vehicle that promoted additional investment that would not otherwise take place.
	I was interested to read what my hon. Friend, and the hon. Member for Falmouth and Camborne (Julia Goldsworthy), said about the AIM market. My hon. Friend said that new supply and additional investment are more likely to come from smaller companies that want to grow than from well-established companies that may simply be holding companies for existing assets rather than developers. The argument about AIM is finely balanced but which side one comes down on depends to some extent on what one sees as the objective of that vehicle.
	It would be helpful if the Minister explained either in the annual report that I hope we are about to impose on him or, more economically, in his response to the debate, to what extent the proposal is a new badge on something that is already happening or an opportunity for fresh investment that would otherwise not have taken place.
	My second point is on the balance between commercial and residential investment. I touched on the matter on Second Reading and I hope that it will be raised in our debate on the proposed report in amendment No. 24. As I said on Second Reading, the original thought behind REITs was to promote residential investment, where there is more pressure on the demand side; one cannot directly invest in residential property, whereas there are several vehicles for investing in commercial property.
	Although the original thrust of the debate about REITs was on the residential side, at some point it was diverted into a preoccupation with the commercial property side. I have nothing against that; I am in favour of the proposal, but the Barker report, in which the Treasury had an enormous interest, was very interested in promoting additional supply on the residential side. So far, we have not heard from the Government on the extent to which they hope that REITs will feature by generating fresh, respectable, long-term institutional investment in residential property for rent as opposed to being a vehicle for commercial properties.
	In conclusion, I hope that we can tempt the Minister into philosophical mode and into raising his sights beyond the nitty-gritty of the amendments and that he will put the clauses into the context of where the Government are heading, what they hope to achieve, and the balance between residential and commercial property.

David Gauke: There is fundamentally a great deal of consensus on this issue. All parties want REITs to come in and they want the idea to succeed.
	The Government have set out in their regulatory impact assessment some of the reasons for REITs and it specifically focused on the weaknesses within the property market and the areas where they could be improvement. In particular, it highlights the lack of choice for small investors, poor liquidity, the potential for more efficient use of commercial property, variable standards of provision in the private rented sector, high levels of debt financing and tax distortions. The Government's intention is to address those problems through the use of REITs. Paragraph 2.8 of the RIA states:
	"The Government believes that the proposed vehicle addresses all of the above points by introducing more choice for small investors, allowing more liquidity in the market, giving potential for more efficiently and professionally managed property, reducing dependency on debt for financing and removing tax distortions."
	I do not think that anyone would particularly disagree with that.
	We can also add the other factors that are favourable for REITs. There is a growing appetite for such products and their introduction should be good for the City of London and make it the leading REIT centre in Europe. We would all welcome that.
	As my right hon. Friend the Member for North-West Hampshire (Sir George Young) pointed out, however, it has taken a great deal of time for us to get where we are. The idea of REITs has been around for a long time. In recent history, the industry made a great push to introduce them in 2000. That was unsuccessful, but the move was revived in 2003. Since then, there have been various discussion papers, culminating in this year's Budget with a view to the first REITs being available in January 2007. I used to work as a lawyer in a City firm and I know from personal experience that there was a great deal of expectation a couple of years ago that REITs were about to take off. Everyone was gearing up to prepare for that. However, the move slowed down, and nothing very much happened.
	There are one or two concerns about the delay. In that period, a lot of money has gone offshore. In particular, a number of Jersey property funds have been created that catered for something that perhaps could have been catered for by REITs. That is a concern for the City and a worry for us all. We are, to some extent, playing catch-up. In the past couple of years, Jersey has been able to develop as a market in this sector and it has gained reputational benefits perhaps at the expense of ourselves, because we are slightly behind the game.
	It is important that we get the legislation absolutely right, because there is also the concern that the delay may in some way indicate the Government's half-heartedness. I hope that, by scrutinising the Government's position in this debate and upstairs, they will be able to make it absolutely clear that they are committed to REITs and see them as a long-term prospect.
	Yesterday, we discussed issues such as the home computing initiative, in which something comes in with a tax incentive that is then taken away. That leads to a degree of uncertainty that is bad for investors and the industry. When there is uncertainty and changes, we do not attract the same level of investment. It is important for businesses to look long term and Governments—particularly this Government—move in a short-term fashion. I hope that we will in the debate obtain reassurance from the Government on their attitude to REITs.
	It has to be said that there are positive aspects to the proposals. There is no doubt that the 2 per cent. conversion charge is what the British Property Federation was looking for. There is no criticism of the Government for introducing that. It is encouraging, and I hope that the Economic Secretary will continue in that vein later in the debate. It is important that we get this right and that we have close scrutiny of the proposals to ensure that there is a long-term commitment and that we do not have to change things in a couple of years. That would lead to the stability that would enable the REIT market to develop.
	Turning to the amendments, I will address the issue of the alternative investment market. With a number of colleagues, I had a meeting with representatives of the London stock exchange just a week or so ago. The message is that AIM is a great success story. It has really taken off. The number of companies listed on AIM has expanded very rapidly in recent years and it has been a very useful attribute to the London stock exchange. We have, in the City institutions, something that we can be proud of and that is hugely important to the economy of this country. I hope that no hon. Member will suggest, in the course of the debate, that AIM is in some way dodgy or disreputable, or in any way something that we should be slightly embarrassed about. There may well be good arguments as to why REITs should not be listed on AIM, although, on the face of it, many REITs will be quite small entities and one would think that perhaps it might be appropriate to list them on AIM. I would be grateful to hear the views of the Economic Secretary on that point.

John Thurso: I should declare my entry in the Register of Members' Interests. I own 2 per cent. of an AIM-listed company; it has not done very well. Surely the point is that, although AIM is an excellent market that has fulfilled its remit extremely well and is therefore to be congratulated and supported, there are a number of important fund managers—particularly in the case of pension funds—who, for reasons of policy, decide not to invest on AIM and to confine their investment to the main market.
	The point of REITs is, among other things, to give those fund managers an opportunity to invest in an investment vehicle for property without the risk of being in a property company with developments, or being directly involved in property. Therefore, is it not perfectly appropriate to commence the scheme on the main market first, see how it goes and then extend it at a later stage to AIM, if thought fit?

David Gauke: That is an invaluable point and I am most grateful to my hon. Friend for his knowledge and insight into all things financial and all things American.
	On close companies, which my hon. Friend the Member for Rayleigh (Mr. Francois) addressed so thoroughly, one can look at that issue in conjunction with the 10 per cent. ownership rule, which, to use his terminology, falls within the yellow card regime as opposed to the red card regime that applies to close companies. One of his points was that REITs are not a unique product in the sense that there are many international comparisons. We have just heard a comparison with the United States from my hon. Friend the Member for Braintree (Mr. Newmark). It might be worth while to examine some of those international comparisons, because there are different regimes in different countries.
	On the internet this morning, I spotted a document produced by Ernst and Young, which is a summary of the tax treatment of REITs internationally. I will quote from it, but I should issue a word of warning; this is by no means a criticism of Ernst and Young. In my previous career as a lawyer, I was involved in collating international advice from various jurisdictions and then trying to summarise it in one document.
	That task is notoriously difficult to perform. We are dealing with a complex area, and it is often difficult to simplify information and obtain advice from jurisdictions in which there may be language difficulties and considerable differences that are not always appreciated when one person is collating information. However, it is interesting to note the different requirements on ownership, which relate directly to the question of close companies.
	In Australia, there are no minimum or maximum shareholder requirements. However, other international regimes impose more limitation or control on the ownership structure of a REIT, or equivalent vehicle, than that proposed for the UK. For example, the document says that, under the Canadian system, real estate investment trusts
	"must be qualified for distribution to the public and must have at least 150 unitholders",
	which is a considerably larger number. A rather different situation applies in Brazil. The document states:
	"Construction companies may not hold a greater than 25 per cent. participation",
	but there otherwise does not appear to be any great qualification. If hon. Members are interested in Costa Rica, the document says that "25 or more investors" are required, as I am sure that the Economic Secretary is well aware.
	In Israel, the document says:
	"At least 50 per cent. of the company's voting rights should be held by more than five shareholders".
	My hon. Friend the Member for Rayleigh said that Japan already has a relatively mature REIT market. The document says that, in Japan, the
	"three largest investors must own less than 50 per cent. of the units"
	and that the
	"10 largest investors must own less than 75 per cent. of the units in order to be listed on the Exchange".
	In Korea, the document says:
	"No single shareholder (including its related parties) is permitted to own more than 30 per cent. of shares".
	The situation in the Netherlands is especially complex. The document says that for listed REITs, a
	"Shareholder that is a Netherlands corporation must own less than 25 per cent. (directly or through related entities)".
	It continues to say that a
	"Shareholder that is an individual must own less than 25 per cent.".
	With regard to unlisted REITs, it says:
	"Shareholders that are taxable corporations (either Dutch resident or foreign) must own together less than 25 per cent.",
	that a
	"Shareholder that is a Netherlands corporation must own less than 25 per cent. (directly or through related entities)"
	and that a
	"Shareholder that is an individual must own less than 5 per cent."
	Different rules thus apply in various jurisdictions and the area is complex. There is evidence from overseas that one could pray in aid of the amendment on close companies, but, equally, evidence of more restrictive overseas requirements on the ownership of a real estate investment vehicle.
	It is important that we get some indication of where the Government intend to go with this. On ownership, I believe that the purpose of the 10 per cent. rule is to prevent double tax treaties being used to facilitate overseas investors acquiring more than 10 per cent. and thus enabling them to benefit from double tax treaty provisions that would reduce their tax liability. I would be interested to know whether the Government are considering expanding the proposal, especially for specific vehicles, such as pension funds, which I understand, as a matter of practice, do not to tend to pay tax on properties in the UK in any event. Are negotiations taking place with other countries on double tax treaties to try to expand the area so that REITs fall outside it, which might enable the 10 per cent. provision to be raised a higher level, such as 40 per cent.?
	The Government have at last progressed this matter, and we all recognise that that is a good thing. The signs are that the Government have listened to industry, particularly on the conversion charge not causing difficulties. Effectively, they have given the industry what it wanted. During this afternoon and in future we require a firm commitment from the Government that they will not abandon REITs if they find in two years' time that REITs are costing a bit of money. We do not want REITs to be struck out like a home computer initiative of its day. The industry requires a long-term commitment. I hope that the Government will be able to demonstrate that they have that commitment during the debate.

Mark Francois: I thank the Minister for giving way so early in his remarks, and I notice his bullish opening. I appreciate the commitment that the regulations will be available before we reach the relevant clauses in Committee, but that could mean, theoretically, that they are published the night before. We would like to see them earlier, so that we have time to digest and, ideally, consult on them with interested parties before we start debating the clauses. I am sure he will understand the reasons for that. It is a reasonable request. I wonder whether he can do a little better, under the circumstances.

Ivan Lewis: My undertaking could, theoretically, mean the night before, but I will do my best to ensure that the hon. Gentleman and other members of the Committee have sight of the regulations much earlier than that.
	The hon. Member for Falmouth and Camborne (Julia Goldsworthy) asked me for a longer-term projection on receipts. That is not standard practice. In the present circumstances, three years is a reasonable period, but as the market develops during those three years, I am sure we will be able to consider a longer period.
	As he did on Second Reading, the right hon. Member for North-West Hampshire (Sir George Young) raised a couple of important issues, which I shall try to deal with. He was keen to know our assessment of how much of the emerging market would entail the conversion of existing companies, and how much of it would involve new investment—newcomers to the marketplace. At this stage the introduction of a UK REIT is intended to improve the situation for existing companies, but as a consequence of doing that we expect new companies to emerge in the marketplace. We believe that there will be a dual effect. The measure will initially assist companies already in the marketplace, and it will encourage newcomers to the market.
	The right hon. Gentleman also asked about the change of emphasis to commercial property. He will remember the housing investment trusts that were introduced in 1996 by the previous Conservative Government, which were specifically focused on low cost residential property. Sadly, no housing investment trusts were created as a consequence of that legislation, but UK REITs have always involved both commercial and residential property. Of course, the commercial property market is an important part of the economy, so it is vital that that market is working efficiently. I would not necessarily accept that there is undue emphasis on commercial property, but it is a very important part of this new development.
	I shall come to the other points made by the right hon. Member for North-West Hampshire in a few moments.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) took us on a tour of the international community, of which I am sure we were all appreciative, in looking at the models that exist in different countries. I should like to make two points. It is important that hon. Members adopt a model that we believe is appropriate to the current UK market. However—this also responds to a point made by the hon. Member for Rayleigh—it is also important that we keep that market under review, as it develops.
	We are willing to consider any consequence of market developments and what we are learning about what happens in the international community. We must always be willing to consider whether we want to change the regime in the interests of the market and clearly not to the disadvantage of the Exchequer. Of course, we can give a commitment today, in the context of the concerns that have been made or suggestions to do things slightly differently, that we will keep the situation under review. If necessary in the future, we would be willing to consider in a flexible way whether changes need to be made.
	The right hon. Member for North-West Hampshire was keen that I try in my response to look beyond simply the amendments and put the UK REIT regime into a bigger picture or wider context. If you will permit me, Sir Michael, I intend to do that, as I develop my arguments. Of course, I will then deal specifically with the amendments and explain why we do not feel able to accept them at this stage, although we will reflect on the reasons why they have been proposed, quite responsibly, by the Her Majesty's Opposition.
	I should like to remind the Committee of the rationale for UK regime, of which clause 106 is, of course, an important element. REITs exist in a number of other countries with well-developed property investment markets and provide a specific tax regime for investing in property. We believe that the time has clearly come for the UK property market to have access to such reforms. Investment in property can be undertaken both directly and indirectly, such as through a company or unit trust, but the way in which property companies are currently taxed has led to inefficiencies in the way that markets operate.
	Property companies are taxed at corporate level on their rental income in the same way as all other companies. However, as a consequence, for many types of investor—for example, pension funds, and I will deal with the comment about pension funds—the overall tax effect of investing indirectly through a property company is higher than if they had bought the property directly. That tax distortion has led to significant inefficiencies in the market, as tax has often been a primary driver of investment decisions, and the Government are seeking to remove that distortion with the introduction of this legislation.
	I want to talk a little about the market inefficiencies that we believe require addressing. First, there are high barriers to entry to investment in the property market, particularly in commercial property, where few retail investors have access to that asset class, given the scale and cost of the underlying property assets. The introduction of UK REITs will therefore help to improve access for all investors by allowing smaller, more liquid investments.
	Secondly, as I mentioned earlier, there are a number of ways for investors to access returns from property: direct ownership, onshore and offshore unit trusts, limited partnerships and companies. Given the differing tax regimes that apply to those vehicles, investing in property through a listed UK company is relatively unattractive. As a result, the commercial property investment market is now characterised by poor levels of liquidity, with pricing and investment decisions largely determined by individual transactions among a relatively small number of players. REITs will offer the opportunity for a more liquid market, with improved transparency and scrutiny, by removing the tax disadvantage that listed property companies currently face.
	Thirdly, UK property companies have tended to have a market value lower than the value of their net property assets, a feature caused in part by the tax system. That has led to a strong reliance on debt financing since equity investors are less attracted to listed property companies. The UK REIT regime will reduce the impact of tax as a significant factor in the choice between debt and equity in raising capital.
	Fourthly, a high proportion of commercial property in the UK is owner-occupied, and there is some evidence that this property tends to be used less intensively than property in the investment market. The introduction of UK REITs offers the opportunity for greater economies of scale, as a new tax-efficient vehicle will be available through which property can be released into the investment market.
	Finally, as highlighted by the Barker review of UK housing supply, UK REITs offer the opportunity to provide greater institutional and professional investor involvement in the private rented sector as an alternative to the direct buy-to-let market. That will help to address the variable standards of management and quality of housing stock, particularly at the bottom end of the private rented sector, as well as providing developers with a more efficient and liquid investment market into which newly developed private rented accommodation can be sold.
	Furthermore, while we are on the subject of housing, the introduction of the UK REIT regime supersedes the housing investment trust or HITs regime, introduced in the Finance Act 1996. It has been confirmed through consultation with industry that the provisions of the HITs regime were never utilised. The Government therefore propose to repeal the relevant parts of the Taxes Act.
	In summary, the proposed UK REIT regime will help to address the various problems that I have just described, and we believe will lead to a more efficient property investment market in the UK. At the same time, the Government have always stated that one of our objectives is to retain fairness for all taxpayers by ensuring that UK REITs are introduced at no overall cost to the Exchequer. For that reason, companies joining the UK REIT regime will be required to pay an entry charge, details of which are set out in clause 112.

Julia Goldsworthy: I beg to move amendment No. 25, in clause 13, page 14, line 20 [Vol I], leave out Table A and insert—
	
		
			 CO2 Emissions figure Rate 
			 (1) (2) (3) (4) (5) 
			 Exceeding Not Exceeding Reduced Rate Standard Rate Premium Rate 
			   Households with a postcode in a sparsely populated rural area Households with a postcode in a sparsely populated rural area Households with a postcode in a sparsely populated rural area 
			 g/km g/km £ £ £ £ £ £ 
			 100 120 30 15 40 20 50 25 
			 120 150 90 45 100 50 110 55 
			 150 165 115 57.50 125 62.50 135 67.50 
			 165 185 140 70 150 75 160 80 
			 185 — 180 90 190 95 195 97.50

The First Deputy Chairman: With this it will be convenient to discuss the following amendments:
	No. 21, in clause 13, page 15, line 2 [Vol I], leave out Table B and insert—
	
		
			 CO2 Emissions figure Rate 
			 (1) (2) (3) (4) (5) 
			 Exceeding Not Exceeding Reduced Rate Standard Rate Premium Rate 
			   Households with a postcode in a sparsely populated rural area Households with a postcode in a sparsely populated rural area Households with a postcode in a sparsely populated rural area 
			 g/km g/km £ £ £ £ £ £ 
			 100 120 30 15 40 20 50 25 
			 120 150 90 45 100 50 110 55 
			 150 165 115 57.50 125 62.50 135 67.50 
			 165 185 140 70 150 75 160 80 
			 185 225 180 90 190 95 195 97.50 
			 225 — 200 200 210 210 215 215 
		
	
	No. 22, in clause 13, page 15, line 12 [Vol I], at end insert—
	'(3A) after paragraph 1B insert—
	"1BB For the purposes of paragraph 1B above, 'households with a postcode in a rural area' shall be defined in regulations; and before making such regulations the Chancellor of the Exchequer shall consult the Countryside Agency.".'.

Paul Goodman: It is a pleasure to see you in the Chair, Mrs. Heal. It is also a pleasure—after listening to some of the Second Reading speeches and some of the speeches that have been made today—to take part in this Finance Bill debate for the first time.
	I am sorry that I cannot respond directly to the Economic Secretary, who, in a bold, combative and assertive statement, said that the Conservative party might need a reshuffle after the local elections. I was going to tell him that there might just be a reshuffle in the Labour party. I note the shock on the Labour Benches at the very prospect of that being raised, but I was going to tell the Economic Secretary that whatever might happen in that event, I hoped that he and the Financial Secretary—who is here—would be present in the Standing Committee, because I look forward to the usual exchanges.
	I shall return to the Government's proposals when we debate clause stand part. The key to the amendments can be found in tables A and B in clause 13. Table A sets out VED increases for vehicles registered before 23 March—the Liberal Democrats seek to amend that table—and table B sets out the increases for vehicles registered after 23 March.
	The amendments tabled by the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for South-East Cornwall (Mr. Breed) should be put in context. Last Thursday the leader of the Liberal Democrats, the right hon. and learned Member for North-East Fife (Sir Menzies Campbell), suddenly rushed out what he described as a challenge to my right hon. Friend the Member for Witney (Mr. Cameron) to form what he described a cross-party consensus on the environment.
	The timing of the challenge was a little curious, as I understand that my hon. and right hon. Friends were already holding discussions with the hon. Member for Eastleigh (Chris Huhne), who I see is in his place, about forming exactly that cross-party consensus. We were therefore a bit surprised to receive the challenge, whose content was also curious: the right hon. and learned Member for North-East Fife urged my right hon. Friend the Member for Witney to sign up to replacing the climate change levy with a carbon tax—something to which my right hon. Friend had already signed up several days earlier.

David Taylor: On a point of order, Mrs. Heal. Can you advise us as to whether this metaphysical discussion of the Liberal Democrat party's strategy—or absence thereof—is advancing the debate on the amendments before the Committee?

Paul Goodman: I shall return to the specifics of the amendments, even if I disappoint some Labour Members by doing so.
	We have been told why the Liberal Democrats tabled the amendments that we can discuss fully and vote on: households in sparsely populated rural areas have special transport and social needs. People in rural areas who farm or work on the land, it is argued, often need larger vehicles that emit more carbon. That is true, and during the coming days and weeks, we look forward to hearing Liberal Democrat Members, who represent urban areas and who have, like the hon. Member for Eastleigh, I am sure, been fully signed up to amendment No. 25 by the hon. Member for Falmouth and Camborne and her colleague, the hon. Member for South-East Cornwall, explain to their urban constituents why they should pay higher VED on the most polluting vehicles registered before 23 March 2006 while people in rural areas pay lower VED on exactly the same vehicles.
	We also look forward to the hon. Member for Eastleigh explaining that when he told the News of the World that
	"If people choose to buy the most polluting cars they must recognise the environmental cost",
	he meant to say that if people choose to buy the most polluting cars they must recognise the environmental cost "sometimes".

Paul Goodman: If so, the Liberal Democrats might have found a clearer way to spell out a full definition in their amendments. Furthermore, Members and other people with an interest in the measures may find other definitions of "sparsely populated rural area", which could be introduced in the Standing Committee. There could be some controversy—at the very least—in the hon. Lady sticking so precisely to one definition. However, that is merely an introduction to the deep problems posed by amendments Nos. 25 and 21, to which I shall turn shortly.
	With reference to the consultation proposed in amendment No. 22, why is the Countryside Agency the only body named? What about other Government bodies with an interest in rural areas or the environment, such as the Environment Agency or the Air Quality Forum? What about non-governmental bodies with an interest in rural affairs, the environment and vehicle excise duty? Transport 2000, Friends of the Earth and Greenpeace have made comments on the Government's VED proposals, to which I shall refer in the clause stand part debate. If amendments Nos. 25 and 21 were successful, and the Liberal Democrats obtained the changes to VED that they seek, how would those changes be implemented in the time gap between the passing of the Finance Bill—if it is passed—and the subsequent laying of regulations before Parliament?
	Other questions follow. Is it right that a multimillionaire driving a polluting vehicle and living in a mansion should pay a reduced rate of VED on that vehicle if he registered it before 23 March? [Hon. Members: "David Cameron."] That was not the gentleman I had in mind, but I am grateful to Labour Members for drawing the matter to my attention. I do not believe that he is a "multimillionaire". Would it be right for such a mythical and imaginary person living in a sparsely populated rural area and owning a polluting vehicle to pay a reduced rate and then move out of that area? Is it really fair that someone who does not live in a sparsely populated rural area and who owns a green vehicle does not pay a reduced rate and then moves into that area?

Paul Goodman: I am glad to have that clarification from the person who is clearly leading for the Liberal Democrats in this debate. If he looks at the amendment paper, he will see that the amendment to table A, which deals with people who have registered cars before 23 March, applies to a cut in the rate for all vehicles, including the most polluting. I shall come to that point in a moment.
	Amendment No. 25 seeks to reduce VED rates for the most polluting vehicles registered before 23 March this year while amendment No. 21 seeks to leave unchanged VED rates for the most polluting vehicles registered after 23 March. There is a case for leaving unchanged the VED rates levelled on the most polluting vehicles that have already been registered by people who live in sparsely populated rural areas, but I find it very hard to see a convincing case for cutting those rates, which is what the Liberal Democrats are proposing.
	There is also a case for leaving unchanged VED rates levelled on the most polluting vehicles registered after 23 March just as there is a case for raising VED rates levelled on those vehicles, as the hon. Member for Wolverhampton, South-West (Rob Marris) sought to do—if I can turn metaphysical for about 10 seconds—in amendments that were not selected for debate. However, there is surely no case whatever for seeking simultaneously to leave unchanged VED rates on the most polluting vehicles in some rural areas while seeking to raise VED rates on those vehicles in these areas. The Committee will agree that one cannot do both at once. I do not want to be ruled out of order, so all I will say is that hon. Members only have to read the amendments tabled for the debate to see that one political party has sought to do both at once and, needless to say, it is the Liberal Democrats.

Paul Goodman: I shall come to all that in the clause stand debate. If the hon. Lady is not happy with my answer then, I will be happy to give way to her.
	As I said, we cannot discuss in detail a tax rise proposed in an amendment that was not selected for debate, so I will not seek to explore further the mystery of how the Liberal Democrats propose simultaneously to raise a tax while leaving it completely unchanged. I will, however, assure the Committee that the Conservative party will do all that it can tomorrow, as people vote in the local elections, and in the months to come to raise this mystery and the incoherence of these amendments on the doorstep and at every opportunity with voters whenever the issues of green taxes or the environment are raised. I am afraid it is the same old story. It is one thing for one group of people outside and another thing when it comes to tabling amendments to the Finance Bill. The Liberal Democrats have a choice. They can be a serious potential party of government or they can be fringe operation whose muddled, ill-thought-through and opportunistic contortions provide hours of harmless entertainment for all the rest of us.
	On the basis of these amendments, they have chosen to be purveyors of entertainment. I urge the Committee to reject the amendments.

John Thurso: I rise to support the Liberal Democrat amendments, but, first, I want to set out the nature of the problem that my constituents face. Any of my constituents—there are quite a few of them—who are watching this afternoon's proceedings on the parliamentary channel will have been somewhat bemused by both the tone of the remarks and the risible nature of the conduct of the hon. Member for Wycombe (Mr. Goodman), in particular. For them, the amount that they have to pay for motoring is a very real issue, as are the extra costs that they bear not simply through VED—as will happen under the Bill—but through the excess that they pay on fuel costs.
	Let me set out the problem in an area that I confidently expect that nobody will dispute is genuinely sparse. I refer to Caithness, Sutherland and Easter Ross. Some parts of Sutherland have a population density that is somewhat less than that of the Sahara desert. The area is 3,400 square miles and there is no public transport whatsoever available for very large parts of it. The vast majority of people who live there are crofters and small farmers who make a living by operating the croft—since there are so many Members present who have no experience of Scotland, I will remind them what that is. It is a smallholding with two or three acres of in-by land and access to common grazing. It is not something that anybody is going to make a vast amount of money on. Those people will croft part time and they will work part time—perhaps going to sea; perhaps doing something else.
	The likelihood is that those people—the majority of whom will be on modest or low incomes—will have only one vehicle. That one vehicle will double as the family transport and the farm workhorse. That is the vehicle that they will have to use. They need a vehicle of a certain size to be able to operate the farm and they have to use it for other things that they have to do, such as taking the kids to school. First, people in that area have no choice. There is no public transport, unlike in many of the constituencies represented here this afternoon, where public transport is available. Secondly, and most importantly, there is no congestion of any kind. Of course, all those who are interested in climate change will understand that congestion multiplies the effect of emissions fairly considerably.

John Thurso: My hon. Friend makes that point extremely well. A bus with one person in it is far more polluting that a car with one person in it. He is absolutely right.
	The objective that the Government have set out to achieve with the increase in vehicle excise duty is extremely laudable. It should be the case that more-polluting vehicles are punished and, broadly, we want to see a reduction in polluting vehicles and in emissions. However, much of the debate—including the discussions that we have heard today—has been characterised by references to what people are wont to call Chelsea tractors. I am not persuaded that that is the appropriate way for the debate to proceed. We are unable to go into any detail today, but I am not persuaded, as a point of principle, that taxation of ownership—in effect, that is what vehicle excise duty does—is the most appropriate way to tackle pollution and congestion. I would look to a form of national road user charging as the appropriate method to do that. In addition, I very much doubt whether any great increase in vehicle excise duty will have much impact on the owner of a Chelsea tractor. Such people tend to live in million-pound homes and have six-figure incomes, so I do not think that they will notice it very much. However, my constituents on whom the increase is to be imposed will see it as a real burden. As I have already said, such people typically have low or modest incomes.
	I have raised this matter before in Westminster Hall. The price of petrol and diesel in Wick, Thurso, Durness or any of the other remote areas in my constituency tends to be between 10p and 15p more than even the dizzy metropolitan heights of the cost in Inverness. Typically, the premium averages out at about 12p a litre. One of my constituents who owns a car with an average consumption of sufficient substance to tow the sheep to market will pay something like £200 a year more for their fuel than a person with exactly the same vehicle who operates in an area with a more competitive market for fuel, such as Inverness, Edinburgh, or even London.

Stewart Hosie: It seems that there is a move to tackle two separate issues. The first is to create a vehicle excise duty regime that will offer a genuine disincentive to unnecessary use of high CO 2 emitting vehicles, and the second is to protect car users in rural areas where there is no alternative to the car and unnecessarily high costs.
	The amendment draws attention to a number of flaws. First, the main penalty faced by drivers in remote and rural areas is the regular high cost of fuel, not the one-off cost of VED. The price of fuel went through the £1 a litre barrier in many parts of Scotland some time ago. The issue would be far better resolved by a sensible and sensitive fuel-tax regulator to lower the level of duty when world oil prices rise. It is a great pity that such a regulator was opposed by the Liberal Democrats and others last year.
	The issue of fuel cost is extremely important. The last available rural Scotland price survey showed that in all of rural Scotland the price of road fuel was 6.3 per cent. higher on average than in urban areas. In the rural highlands and islands area, the price was 9.7 per cent. higher. This is a genuine issue.
	The second flaw is that the amendment does not recognise the difference between genuine working vehicles and other high CO 2 emitting vehicles that happen to be in rural areas, for which a disincentive for high use or unnecessary usage would be welcome. For vehicles that are not used for genuine working purposes where the owners are as close, perhaps, to a supermarket or a filling station as the owners of vehicles in some of the suburban parts of my constituency, a reduction in VED would be unnecessary.
	The third flaw is the definition—definition is incredibly important—of a sparsely populated rural area. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) referred to the Countryside Agency's definition. Would she prepared to accept amendments to the amendment? Obviously the agency has no locus in Scotland or in Wales. That has been accepted. However, there are a number of definitions. The definition used by the Scottish Executive contains a sixfold description of rural and urban areas. That covers 98 per cent. of Scotland's land mass and 18.7 per cent. of the population. That definition would be wholly inappropriate.
	There is also the Randall definition, which is based on sparsity of population. A sparsely populated rural area is defined as one with less than one person per hectare. The definition is based on local authority areas that cover Aberdeenshire, Angus, Argyll and Bute, Dumfries and Galloway, east Ayrshire, the highlands and so on. That definition would cover 89 per cent. of Scotland's land mass and take in 29 per cent. of the population. The use of such a definition would also be wholly wrong.
	I am on record in this Chamber—twice, and I stand by it—as saying that there is a world of difference between a Land Rover taking animal feed up a snowy field in late spring to early lambs, and a "Chelsea tractor" sitting outside a flat in Kensington. Of course something needs to be done to help genuine working vehicles.

Stewart Hosie: The Financial Secretary will correct me if I am wrong, but I believe that the Budget documentation referred to discomfort with the red diesel regime, because many on-road vehicles now fall within it. So I am not sure that the hon. Gentleman's point is particularly helpful in this regard.
	In intervening on the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) during a previous debate, I argued that there is a difference between working vehicles and "Chelsea tractors". He agreed and suggested that there must be a better way of dealing with the problem. I agree entirely. We need to establish a regime that does not penalise genuine working vehicles. We should have started with an analysis of the impact of high fuel and high VED, and I hope that we can soon establish a sensible fuel tax regulator similar to the one proposed previously. I hope, too, that the Government will consider what the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) said in a previous debate about an EU derogation for the areas to which he referred. Of course, there are other ways of defining "remote" and "sparse", but those terms are not defined in the amendments before us.
	We will not support the amendments because they are ill-conceived and ill-thought through. They seek to reduce vehicle excise duty for too many people, which would be unhelpful in terms of the environment.

Rob Marris: The hon. Gentleman is speaking in favour of amendment No. 21 which, as I understand it, is not revenue-neutral. He is supporting an amendment that will cut green taxes, so he is speaking against his case.

Christopher Huhne: The hon. Gentleman may have misunderstood me. The Countryside Agency's definition of a sparsely populated rural area in England is of the least densely populated 5 per cent. of areas in England. If the same criterion—the same lack of density—is applied to Scotland, I have no doubt that it would apply to a substantially greater part of Scotland than of England, as Scotland forms 40 per cent. of the landmass of the United Kingdom. As this is a taxation matter, exactly the same definition should be applied in Scotland, Wales and England.
	There is a very clear and robust definition, which is perfectly capable of handling the issue. I refer those hon. Members who would care to have more detail to the excellent paper of Messrs. Bibby and Shepherd, entitled "Developing a new classification of urban and rural areas for policy purposes—a methodology", which is published on the Office for National Statistics website.
	Some sparsely populated areas, unlike many rural areas, are still declining. About 600,000 people live in the sparsely populated English areas out of a combined rural population of some 9.5 million. Those areas have particular problems in achieving one definition of sustainability—somewhere that people want to live and work—and the underlying problem is remoteness. There are dramatic differences—for example, in broadband connectivity, with just 33.4 per cent. of households in villages in the sparsely populated rural areas having such access, against more than 75 per cent. in villages in the less sparsely populated rural areas. People are further from public services, such as those provided by GPs, hospitals and secondary schools. Bus transport is even less frequent. The economy is clearly less successful. Income poverty is clearly higher than in other rural areas, although it is still broadly in line with the national average. That is why it makes sense to introduce a discount that helps those areas in particular.
	In cost terms, this is a modest measure, partly because there are relatively few households in those sparsely populated rural areas and partly because such a high proportion of them are recorded as a second or holiday homes and therefore would be ineligible for the discount. Indeed, in sparsely populated villages, the Countryside Agency reports that almost one in 10 household spaces is recorded as a second or holiday home; about five times the number found in similar-sized settlements elsewhere.
	There is another mitigating factor on cost. There would be no discount on the new band G or the vehicles that emit most carbon. The cost of up to £50 million a year for England, using the most conservative assumptions about the size of vehicles, is small by the side of the extra revenue that the Chancellor can hope to gain with both the indexation of fuel duty and a more radical approach to the progressivity of vehicle excise duty.
	Although other proposals that deal with revenue raising cannot be debated because of the rules of the House, it is worth pointing out that the £2,000 revenue raising proposal, for example, would more than adequately fund the rural discount. This is a sensible package that would enable green taxes to do their work in helping to change behaviour, without raising taxes overall. Since the increases in vehicle excise duty would operate for new cars only, the impact on purchasing decisions is open and transparent. No one could claim that they had not been forewarned. Moreover, there is a benefit for those with existing cars in sparsely populated rural areas that recognises their circumstances, thus allowing greater weight on fuel duty and other green taxes than would be allowed otherwise.
	I note that the Liberal Democrats are the only major party to attempt to grapple with the issue. If we consider what the Chancellor has done, as opposed to the spin that he likes to put on the Budget, the reality is that green taxes have been falling, year on year, as percentage of GDP and, indeed, as a percentage of the overall tax take. I am afraid that the Conservative Front-Bench spokesman, the hon. Member for Wycombe (Mr. Goodman) has confirmed that the Conservatives show no interest whatsoever in using the price mechanism to change behaviour in this direction, and it is matter of regret that, in their proposed amendment to the general motion on the Finance Bill, they did not mention the environmental objectives that are such a clear and important part of such policies; at least that is something that the Chancellor recognises in words, if not in deeds. I very much hope that the House will support the amendment, as it clears the way to a substantially more radical approach to other green taxes.

Malcolm Bruce: We shall see, but I do not think that his contribution demonstrated that understanding. He was implying—this was what slightly nonplussed me—that he thought it unfortunate that our amendments would have qualified a greater proportion of the population of Scotland to receive the benefit. I should have thought that a Scottish MP would welcome the fact that amendments were being tabled that had particular relevance to rural areas of Scotland and from which a greater proportion of Scottish households and individuals would benefit. My hon. Friend has confirmed that applying the English Countryside Agency's definition to Scotland would inevitably reach a greater percentage, for the simple reason that we are defining remoteness and sparsity and the problems that go with them.
	I have just been dealing with a matter relating to fuel poverty in Scotland. Central heating fuel bills in Scotland can be 68 per cent. higher than in the south of England, and the same applies to transport costs for many people living in the north-east, the north of Scotland, the borders and the rural areas of Scotland. Through necessity, transport costs are much higher. Another problem is that, given that people on low incomes have to struggle to pay high excise duties and higher fuel charges, one thing that often goes by the board is regular vehicle maintenance, which has detrimental effects on the environment.
	I commend the amendments, which address a real issue and show the understanding of a party that supports the case for developing green taxes, that in order to ensure that those taxes do not fall disproportionately on people in disadvantaged areas we must introduce refinements. That is what the amendments seek to do and I commend them to the House.

Julia Goldsworthy: The changes in clause 13 are one of the main headlines in the Budget and were used by the Chancellor to bolster his green credentials. He announced with great fanfare that there would be a new band of VED. Incidentally, given the fight to get on the front foot on that issue between the Conservative party and the Labour party, I am surprised that the Conservatives did not call for this clause stand part debate.
	In his Budget speech, the Chancellor said:
	"I propose to radically reform vehicle excise duty."—[Official Report, 22 March 2006; Vol. 444, c. 295.]
	The Financial Secretary has said this about the measure:
	"The strengthening of environmental incentives announced in the Budget is designed to give a clear signal to motorists to consider the environmental performance of vehicles at the point of purchase",—[Official Report, 28 March 2006; Vol. 444, c. 972W.]
	which is a point that he has just restated. The reality is that the measure involves the smallest possible change to the most polluting vehicles. The new band G includes a maximum charge of £250 per annum, which means that the most polluting cars—cars that emit more than 225 g of CO 2 per kilometre—attract a price differential to the next band down that is equivalent to less than half a tank of petrol. What difference will that make to consumer behaviour? The environmental impact of the change in consumer behaviour will be negligible. My hon. Friend the Member for Cambridge (David Howarth) tabled a parliamentary question about the issue and was told that the estimated carbon savings of the new higher band of vehicle excise duty would be equivalent to 0.06 metric tonnes of carbon emitted by 2010. He was told, however, that
	"calculating this figure is complex and subject to a significant margin of error."—[Official Report, 28 March 2006; Vol. 444, c. 972W.]
	As there is virtually no impact on behaviour, the initiative is an eye-catching but ultimately meaningless measure.
	On what evidence did the Treasury base its decision to set the new band at a maximum of £215? The Energy Saving Trust produced a significantly different figure and came to some very different conclusions. It agrees that a new band G should be introduced, but it made it clear that
	"very high carbon cars should pay significantly higher VED than they do now."
	It reasoned that the average carbon dioxide emissions from cars sold to the private consumer market has increased—not decreased—since 2002–03. That should be of concern to the Minister, as private car sales account for nearly half of new annual registrations in the UK or 1.2 million sales. We therefore need to change consumer behaviour, and Government intervention is required to promote and incentivise the low-carbon car market.
	Another key finding in the Energy Saving Trust report is that vehicle excise duty has had little impact on the carbon profile of the private car market. It argues that the proportion of vehicles falling into band F is too high at 50 per cent., and that the differentials are too low to change behaviour. Although there has been some tinkering with differentials and bands in the Bill, the differentials remain incredibly small. For example, the differential between bands F and G equates to less than a tank of petrol, which is hardly enough to change behaviour. Does the Minister believe that the differentials in the Bill are sufficient to achieve a significant impact on consumer behaviour and, if so, on what evidence is that view based? The Energy Saving Trust calculated that the differential for the new band should be about £2,000, rather than £50, to have an impact on behaviour. Will the Government consider adopting such a measure in future years?

Kevan Jones: I am listening carefully to the hon. Lady, but less than 10 minutes ago, Liberal Democrats moved an amendment to make rural areas a tax-free haven for gas guzzlers and petrol heads. Is she trying to tell the House that those areas are exempt from the provision, but that the rest of us must go down the green route?

Rob Marris: I will not, I am afraid, because I do not have time.
	There are some negatives. In recent years, private buyers have been buying fewer fuel-efficient cars each year. In 2003–04, the average figure for CO 2 emissions was 170 g per km. On average, that is higher than the figure for private fleet new vehicle purchases in 2002. In 2005, the UK average was 169 g per km, making us fourth worst out of the 15 European Union countries before accession. The western European average is 160 g per km. The European Union target, which is adhered to in principle by this Government, is to get average emissions for new vehicles purchased in the UK down to 140 g per km by 2008. Unless something dramatic happens, there is no prospect whatsoever of our reaching that target, given that our average in 2005, three years beforehand, was 169 g per km. In some ways, we are even behind China, which has legally binding maximum CO 2 emissions for cars based on their weight.
	I am disappointed with clause 13 in terms of where we should be going. Next year, we should hit gas guzzlers—4x4s are not the only issue. MORI research for the Department for Transport indicated that 72 per cent. of people would swap their vehicles if there was a £300 or more differential on vehicle excise duty. Clause 13 is a start, but the new band G is not nearly enough of a differential.
	We have heard about people in rural areas going across the fields in 4x4s to do their spring lambing. I have to say to hon. Members that of the 10 highest CO 2 –emitting cars, only the Chrysler Jeep SRT 10 comes into the category of a vehicle that one could take lambing. Those that do not include the Lamborghini Diablo, the Lamborghini Murcielago, the Bentley Arnage, the Aston Martin DB7 GT, the Ferrari 612 Scaglietti, the Aston Martin DB7 Vantage, the Lamborghini Gallardo, and the Aston Martin V12 Vanquish. They all emit more than 448 g of CO 2 , compared with 109 g for some of the lowest-emitting vehicles, such as the Toyota Aygo, whether petrol or diesel. Band G is not set high enough. As the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said, some 4x4 vehicles, for those who need them, emit considerably less than 200 g per km—the Toyota RAV4, for instance. I urge my hon. Friend the Minister to look at this seriously and to do a whole lot better than clause 13 in next year's Budget.

John Healey: Earlier, I set out the purpose and outlined details of clause 13 and I am glad that the hon. Member for Wycombe (Mr. Goodman) says that it is going in the right direction. It may interest hon. Members, especially the hon. Member for Falmouth and Camborne (Julia Goldsworthy), to know that, in 1997, only 4 per cent. of the cars that were registered that year had emissions below 140 g per km. In 2005, the figure was 18 per cent. Our reformed vehicle excise duty system plays a part and makes a contribution, alongside other policies, towards driving down the average emissions by cars.
	I am especially grateful to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) for reiterating many of the points that I made about the Government's strong environmental record. I take his point about gas guzzlers as an early representation for the Budget in 2007.
	I commend the clause to the House.
	Question put and agreed to.
	Clause 13 ordered to stand part of the Bill.
	Clauses 14 and 15 ordered to stand part of the Bill.
	Bill (Clauses 13 to 15, 26, 61, 91 and 106 and Schedule 14) reported, without amendment; to lie upon the Table.

Grant Shapps: I rise to raise the issue of missed appointments in the NHS, and the extraordinary cost and impact involved. The matter first came to my attention through one of my constituents, Mr. John Mitchell, who I am pleased to say is watching the debate this evening. Mr. Mitchell, who is from Welwyn, missed a hospital appointment. Being a public-spirited gentleman, he kindly took the decision to send the East and North Hertfordshire NHS Trust a cheque for £15, as he wished at least to make a gesture to make good following his missed appointment.
	Imagine Mr. Mitchell's surprise when the trust, which is some £53 million in deficit, returned his cheque, saying that it did not need it or could not cash it, or something like that. Missed appointments cost the trust about £2.8 million a year. I pay tribute to John Mitchell for taking such a public-spirited approach. He had been to the dentist the previous week and seen a notice saying, "If you miss your appointment, there will be a £15 charge". He therefore thought that the NHS trust would accept the money, and that it might help to make up for his missed appointment.
	That case sparked my interest in the subject, and the Minister will be interested to hear that I then fired off freedom of information requests to each of the 245 acute trusts in the country. I cannot reveal the details yet, because I have not got all the information together. On Monday, however, I will have it, and I shall issue a report that I shall be happy to share. It does not take much to realise that if my medium-sized NHS trust is some £2.8 million adrift as a result of missed appointments, and if there are 245 acute trusts, including the ambulance trusts, in the country, we must be talking about a very large sum of money indeed.
	I want to address the issue of missed appointments and to find out what the Government intend to do about it. I also want to call for much more action than is apparently on the cards at the moment. I know that the issue has been raised with Ministers in the past, and that they said that they would take measures to cut the number of so-called "no-shows". It is therefore a mystery to me that, two and a half years after they made that pledge, nothing has happened. I have the figures here for 2003, when there were about 5 million missed appointments, and 2004, when there were about 5.7 million. Despite the fact that we are only just into May, I shall be able to reveal the figures for 2005 on Monday, and I am afraid that they do not make good reading for the Minister.
	The response so far has been to look for solutions that involve very large computer-oriented fixes. We are all familiar with the £6.2 billion project designed for booking appointments, the so-called choose and book system. We are also aware that the project has been mired in controversy, with backlogs, and with money going down the drain. It was supposed to be up and running by last year, but it was not. I would be interested to hear a progress report from the Minister on that system. An efficient choose and book system would of course make a great deal of difference in cutting the number of missed appointments. However, the Government seem to confuse spending vast sums of taxpayers' money on complicated computer projects with actually fixing the problem.
	In the context of the pledge to try to reduce the number of no shows, and the reference to the new £6.2 billion computer system, does the Minister feel that that was money well spent? Has it lived up to expectations? Clearly it cannot have done so far. Will it live up to expectations, or will that money never be recovered? I ask that question for a very good reason: £6.2 billion is perhaps six times the deficit for this year alone in the NHS. That is an awful lot of money, and so far we have seen no benefits from the system. I have figures from August last year showing that if the system had been on target, 205,000 appointments should have been made. However, only 63 appointments were booked though the computerised system. I would be interested to hear an update on those figures from the Minister.
	The NHS has a big problem of missed appointments, which is costing it a huge amount of money. I will have the figures for that on Monday, and I would not be surprised if the sum is the same as the total deficit in the NHS for last year. I hope that the Minister will accept that that is a huge issue, and I know that the Government have accepted previously that it is a problem. The proposed solution appears to be a very large computer project, which, according to the National Audit Office, has gone terribly wrong. I am keen to hear an update on that.
	Simultaneously—let us not forget that this is at the heart of the problem—my East and North Hertfordshire NHS Trust, which serves perhaps 300,000 people in the Welwyn Hatfield area, while losing all this money through missed appointments and many other problems relating to its financing and running, is closing down children's services, the blue light accident and emergency department, the maternity department, elective surgery and many other services besides. We must get to grips with that problem, which has now spiralled out of control. I am pretty sure that the answer is not spending money. There must be solutions relating to the role of management and Ministers in the running of the NHS.
	Before the Minister starts accusing me of wanting to charge all the patients who miss appointments, let me say that that is not what I am driving at. I use the NHS myself, and do not have any other kind of health cover. Indeed, my life was saved by the NHS in 1999–2000, when I was effectively treated for Hodgkin's lymphoma. I am indebted to the NHS. I do not want to hear anything about how if the Conservatives got into power we would start charging people for all their NHS services. That is not what this debate is about—I know that, because it is my debate. What I want to know is what will happen about missed appointments.
	The Minister might try to tell us that these problems are much more complex than I am trying to represent them as, that the administration involved is somehow beyond our comprehension, that the £6 billion IT system might ultimately resolve the problems—although so far we have little to show for the expenditure—and perhaps that dark forces are at work that a mere Back Bencher cannot easily comprehend. I would point to research carried out by the NHS on why people are missing their appointments. What is the great reason behind more than one in 10 people missing their appointments, at huge cost to the NHS? According to that research, two thirds of those people simply forget.
	I am not convinced that a £6.2 billion computer project is required to remind people of their appointments. I approve of spending on technology in the NHS and can see the worth of it. What worries me more than anything, however, is that where there is a problem there is a budget, that when that budget is broken, that does not much matter, and more will be spent until the problem is solved.
	I do not think it is good enough to say that spending money on huge computer projects is a panacea that will solve a problem two thirds of which is due simply to the fact that an individual forgot to turn up for an appointment. There must be something else that we can do, and some of the solutions may be blindingly straightforward, as is the problem itself—the fact that people are simply forgetting about appointments.
	Let me run a few of my ideas past the Minister. Perhaps I will receive a response. It seems to me that when my constituent Mr. John Mitchell, being a public-spirited gentleman, sent a £15 cheque to the NHS trust, it might have been better had it been cashable by the trust. That was, after all, my constituent's intention. I should have thought that if the trust did not feel that it could cash the cheque, it would have been appropriate to send it to the League of Friends of the QEII hospital.
	What interests me is where the blockage lies. When the trust was asked about the matter, the head of communications, one Peter Gibson, told the local newspaper, the Welwyn and Hatfield Times, that it would be simply illegal to accept the £15. I ask the Minister this: is it illegal to accept a £15 donation, and if so, why? If it is not illegal, will the Minister undertake to drop a note to the chief executive of the East and North Hertfordshire NHS Trust, Nick Carver, explaining that it is not illegal? While she is at it, perhaps she will write to the other 264 trusts in England and Wales telling them that they can accept such donations.
	On Monday, when I release a report containing all the data from all those 264 trusts, I shall be very surprised if other people do not come forward with exactly the same story. I am fairly convinced that a string of constituents from all over the United Kingdom will say, "That's funny: exactly the same thing happened to me."
	I should have thought that in an age when people care passionately about the national health service and really want it to work, the Government and Ministers would want to do more to ensure that people who are generous in spirit, like my constituent, can make up for their error in forgetting to turn up for an appointment. I should have thought that there was sufficient good will throughout the nation for the establishment of a rather more formal arrangement.
	Another solution might be to adopt the dentists' system. There might be a compulsory charge, or it could be suggested that those who missed appointments might like to make a payment. I would be surprised if that did not raise several million pounds a year.
	There are practical solutions that the Minister could pledge to adopt this evening. She could write to all the chief executives reminding them of the legal position. If it is not the case that, as the East and North Hertfordshire NHS Trust claimed, it would have been illegal to accept the money, a letter to remind trusts of that would cost only 264 postage stamps, and could save the NHS a fortune. The Minister could also consider whether it would be possible to introduce a scheme that would stop shy of compulsion, but would go as far as inviting public-spirited payments for missed appointments—if necessary, through a separate fund, or possibly to organisations such as the league of friends of the QEII hospital, which has equivalents throughout the country, or indeed to the main coffers of the trust itself.
	I feel that my questions require answers. I hope that on Monday the Minister will be interested to see the results of the research that I have conducted throughout the country. I also hope that if I send her a copy of my report on the total cost of missed NHS appointments, she will tell me whether further measures could be taken to reduce the number of missed appointments—and I very much hope that the solution will not be purely and simply to rely on a £6.2 billion computer project that we all know has gone badly wrong.

Jane Kennedy: I must confess that when my private office approaches me and says "You must respond to an Adjournment debate", my heart often sinks. On this occasion, however, I must compliment the hon. Member for Welwyn Hatfield (Grant Shapps) on the entertaining way in which he presented his case, and the industry that he displayed.
	I was aware that the hon. Gentleman had made requests under freedom of information legislation to various health organisations, and I compliment him on his industry. He is right that this is an important issue: we take it seriously and acknowledge that it is problem.
	I shall not adopt a political position and say how much better things are under this Government. That would not be appropriate, but it is important to set the context for the debate and make it clear that our investment and reforms are having an impact on waiting times. In the past four years, waiting times for a first out-patient appointment have halved, falling from 26 weeks to 13. The maximum waiting time for an operation is now six months—and the average is even lower—compared with the two years or more that some patients used to endure.
	I do not pretend that the new connecting for health computer system will be the panacea that resolves all problems. I shall detail what I expect will happen in a moment, but our investment means that the NHS will have a proper IT system that is able to track patient progress. That will make it much easier for patients to contact their GPs and the consultants dealing with their cases than has been the case in the past.
	In addition, we are enabling patients to choose where they will go for treatment. The connecting for health system does much more than allow hospitals to track people who do not turn up for appointments. The hon. Member for Welwyn Hatfield referred to the electronic booking system that we are putting in place. That will enable patients to select the time and date, as well the place, for their treatment.
	On top of that, our financial reforms are developing incentives in the NHS to tackle the problem locally. Payment by results should mean that hospitals will no longer be able to pass the costs of missed appointments on to their commissioners. I understand that a figure of £100 per missed appointment is being bandied about. It is not one that I recognise: I think that it overstates the cost by quite a large amount, although I accept that missed appointments are a cost to the NHS.

Grant Shapps: That figure is based on Government estimates in the past, although I admit that I have only seen it quoted in various articles and do not know its precise source. However, I have much more detailed information about the actual cost of each missed appointment. I assure the Minister that my estimates will be based not on the £100 figure but on independent health trust statistics.
	At the beginning of her speech, the Minister reeled out some information about how appointments were being speeded up. Does she agree that that makes little difference to people in Welwyn Hatfield, given that the QE2 is all but being closed down?

Jane Kennedy: The Government will receive the hon. Gentleman's report with interest when it is ready for publication.
	The electronic booking system to which the hon. Gentleman referred earlier should allow patients to see all available dates and times. They can then book an appointment straight after seeing their GP, or at their own convenience after checking with friends and family. We have been testing the system and we know, from pilot sites, that it has a strong, positive impact on missed appointments. The hon. Gentleman may be interested to learn that in one pilot scheme, the out-patients manager reported that none of the patients who had been electronically booked failed to turn up for their appointment. In another pilot, cardiology missed appointments dropped to 10 per cent. for electronically booked appointments, compared to 30 per cent. for traditionally booked appointments. At the Good Hope Hospital NHS Trust, the first two years of electronic booking helped to reduce missed appointments from 16 to 2 per cent. There is still further work to do and further improvements to be made, but we are making progress.
	The investments we have made mean that now almost every out-patient appointment is booked in consultation with the patient, which is a massive improvement on the take-it or leave-it approach of the past. Although we do not collect figures on missed appointments with GPs, we know that it is an issue. That is why the Department of Health is funding the "Keep it or cancel it, but don't forget it" campaign to raise awareness among patients of the impact of their missed appointments. The campaign provides GP practices and primary care trusts with examples of best practice from other areas, as well as tools to help them to address missed appointments.
	Finally, may I return to the point about charging patients for missed appointments? I do not believe that it would be right to charge for missed appointments. First and most important, we remain committed to an NHS that is free at the point of delivery, and I welcome the hon. Gentleman's generous comments about his gratitude to the NHS in his case. Charging for missed appointments would be not only wrong in principle, but uneconomic. Unless the fines were very large, it would cost more to collect them than it would bring in revenue. We are not sure how effective that would be. We know that many of the people who fail to attend are elderly or suffer from mental illness. Would it not be a cruel policy that punished the very people most in need of care and least able to pay?
	We see a national health service that is treating more patients than ever before, treating them more quickly and reducing missed appointments. We are introducing systems that will allow patients for the first time to choose where and when they will be treated, and we are enabling local NHS organisations to tackle missed appointments at the grass roots. I accept that the problem is not resolved, and that there is still a way to go. I anticipate that the hon. Gentleman's report will enable us to consider further what more can be done to help local NHS organisations to reduce the cost to them of missed appointments.
	Question put and agreed to.
	Adjourned accordingly at twenty-six minutes past Seven o'clock.